Monday, November 30, 2015 9:17:40 PM
Transcript:
Sino Agro's (SIAF) CEO Solomon Lee on Q3 2015 Results - Earnings Call Transcript
Nov. 30, 2015 5:20 PM ET | About: Sino Agro Food, Inc. (SIAF)
Executives
Solomon Lee - Chairman and CEO
Bertil Tiusanen - Chief Financial Officer
Dr. Anthony Ostrowski - Chief Scientific Officer
George Yap - Independent Director
Nils-Erik Sandberg - Independent Director
Daniel Ritchey - Independent Director
Anthony Soh - Independent Director
Analysts
Sino Agro Food, Inc. (OTCQB:SIAF) Q3 2015 Results Earnings Conference Call November 30, 2015 10:00 AM ET
Operator
Welcome to Sino Agro Food's Third Quarter 2015 Financial Results Conference Call. During this call, CEO, Solomon Lee will provide an overview of results from operations and highlights for the quarter ended September 30, 2015. He will turn the call over to the Chief Financial Officer for Sino Agro Food, Mr. Bertil Tiusanen. And then we will open the lines for question-and-answer session.
All forward-looking disclaimers included in the company's third quarter 2015 financial and operating results press release dated November 16, 2015, which is available on the company’s website at 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 in the 2014 10-K filing available on 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 Foods Incorporated; Mr. Bertil Tiusanen, the Chief Financial Officer; Dr. Anthony Ostrowski, the Chief Scientific Officer; members of the Board of Directors; Mr. George Yap; Mr. Nils-Erik Sandberg, Mr. Daniel Ritchey; and Mr. Anthony Soh. Questions will come from the phone lines and from those submitted on the web facility. We will have an hour for the call, in the interest of fairness, please ask only one or two questions at anytime selected from the queue.
I would now like to introduce Mr. Solomon Lee. Solomon, please go ahead. Mr. Solomon, I give the -- hand over to you.
Solomon Lee - Chairman and CEO
Okay. Thank you, Sebastian, and thanks to everyone for attending today's conference call. Please turn to slide four. Quarterly revenue for the third quarter was $124.7 million, an increase of 16% over the previous year and 37% over the previous quarter.
Revenue for the Project Development increased by 15% to $28.4 million, which is more than three times the previous quarter. The Zhongshan New Prawn Project saw improvement compared to Q2 2015 and accounted for $19.4 million or 68% of the Product Development revenue in the quarter.
Please turn to slide five, during and subsequent to the third quarter, a number of events took place that will shape the near to immediate term outlook. On the financing, during the quarter, we established the three credit facility with the Shanghai and Honk Kong based import and export entity that will increase the working capital for the import/export dilution by up to $15 million, ensuring a faster revenue growth rate for the remaining months of 2015 and into 2016.
The facility has helped us to secure the exclusive agency for the supply of CAAB branded grain fed Angus cattle by Thomas Foods, which is one of the best supplier of CAAB grain fed Angus in Australia. In term, this will help to establish us into an outstanding supplier of quality beef from Australia.
The trading credit facility is characterized by shares. The terms of the agreement mandate that the share return to the company upon repayment at which time the company will retire those shares.
In later October, The Agricultural Development Bank of China extended SJAP's bank facility to a total RMB90 million. Including a project loan up to RMB35 million, which can be apply for purposes of new development, mergers or acquisition, and which maybe converted to a long-term debt at the certain conditions.
On the business operation and development side, I would like to take this opportunity to talk briefly about The Zhongshan New Prawn Project. We are able to undertake this largest land based agricultural and hydroponic project in the world, because of our intellectual property and our development expertise, and because we have demonstrate economic success at our existing fish and prawn farms with many years of preparation and groundwork building such fundamentals.
In this respect, we are on the verge of completing Phase 1 Stage 1 soon. This stage will eventually allow the production of 6,000 metric tons of prawns per year. Based on that alone, we will be the largest RAS prawn producers in the world and we demonstrate commercial viability and substantial ability, producing high quality, safe food from a fully ecologically sound and are mentally friendly project.
Although, there were delays for initial stocking due to various reasons, for example, the weather and some human errors, but that we think is a normal and acceptable events for such a big project.
However, whatever we learn from such progress will certainly help to improve our knowledge to avoid similar problem from recurring in the future and to allow us to determine more accurate time, projections and can speed our work and progress in the future.
As we reported in our 2015 10-Q, Prawn farm 2 development of the new RAS covered dams on 20,000 square meter broker land using our newly improved APM technology for open dams is about complete. The roofing being installed currently, the aim of this development is to reduce overall costs of APM farms by converting traditional farms into RAS farms. That will improve the product capacity aiming at 6-7 harvests per year instead up to 2-3 harvests per year of the open dam using traditional agriculture systems currently used in China. Additionally, we will reduce costs in modern power usage while maximizing land application.
The company is optimistic that the new improved APM technologies for open dams will open the door for the company to speed up future development of The Zhongshan New Project with the ability to save a big portion of capital expenditures during initial years of recent development. Thus cash flow will improve by having more production and sales that will help to complete the projects overall development sooner than originally anticipated.
In this respect, all of our said work will improve the company’s image as one of the leader in the RAS prawn growing development and operation, and more so with the help of Dr. Anthony Ostrowski in all aspect of the industry efficiency to produce higher quality products.
Also reported in Q3 2015 10-Q, SJAP is expanding to increase its deboning capacity to 12,500 metric ton per year and its freezing capacity to 10,000 metric ton per year. Part of the finish developments are now operational, thus allowing SJAP to debone more quarter cut beef and to address more varieties of beef imported from Australia. All three areas will help the company to build good fundamentals for the near and longer term future.
Next slide please, on the corporate work and exercises, having received feedback from our current institutional investors and major retail shareholders, as well as advisors. We have decided to spin-off agricultural assets and seek a separate listing for dam on the Oslo Stock Exchange.
In addition to fulfilling our intention to diverse several assets in the coming year this approach carry several benefits. We will create a pure-play company with considerable assets and high growth potential.
We target a listing in Norway, the leading seafood capital market globally. We will form this company to conform to Nordic governance standards and exchange requirements, circumventing the complexity and differences of Chinese structure being explained and engineered to compile.
I think it is important for shareholder to remember that above and beyond the company’s execution to achieve growth, our efforts to spin-off asset and to list this on respectable and an appropriate marketplaces, our aim at transparency and improve value visibility more in line with our peer groups. We are now pursuing a new track with cost listing of the company -- of the group company.
Now I will hand the call over to our CFO, who will provide more detail on our operational and financial performance in the third quarter. Bertil please?
Bertil Tiusanen - Chief Financial Officer
Thank you, Solomon. Slide eight please, I characterize last quarter result as a bump in the growth, indeed this quarter showed a return to growth, as revenue showed a 7% higher than the second quarter. So the primarily drivers was Project Development revenue over three times that to the second quarter and the record high sales of goods.
Gross profit also increased by 47% over the second quarter to $32.3 million. However, gross profit growth continues to lag revenue growth due to slight decrease in margins, mainly because of the fluctuation sales mix in agriculture segment and [indiscernible] beef prices.
We are very active addressing those through transitioning to higher margin products. Going forward, the lowest contributor to gross profit growth will be the incremental seafood sales from The Zhongshan New Prawn Project.
Slide nine please. This quarter again demonstrated that investments in capacity and working capital continued to build higher and higher sales. Revenue for the third quarter increased by 16% to a record of $124.7 million.
Agriculture sales were good, increased by 24% to $28.8 million. The increase is mainly due to higher volumes from mixed seafood and prawns. Demonstrating that’s the nature of RAS, several new, higher profit margins in the fresh water fish were sold during the quarter, offsetting the $5.5 million decrease in eel sales.
Integrated Cattle Farm sale of goods increased by 27% to $35.5 million mainly due to increased deboning of imported beef quadrupling production compared to Q3 2014. The increase in deboning volumes substantially overcome or offset the effect of lower prices of live cattle on revenues.
Gross profit and gross margin well accompanied transition is herd to premium beef. Revenue from Project Development increased by 15% to $28.4 million at a rate exceeding three times the previous quarter. Weather improved in August, and the company completed roof build out to allow interior constructions to continue independent of weather conditions. The Zhongshan New Prawn Project accounted for $19.4 million or 68% of the Product Development revenue we will remind that coming from Prawn farm 2.
Slide 10 please. Gross profit decreased 7% to $32.3 million, equivalent to a margin of 25.9%. The decrease was mainly due to lower margins at the Integrated Cattle Farm and Aquaculture segments.
Aquaculture gross profit decreased 22% to $5.7 million equivalent to a margin of 19.7%. The decrease was mainly due to lower eel gross profit offset by an increase in mixed seafood gross profit. The company supplemented low supply of grown-out eels due to long eel leather supply in 2015 with finance page grow out to more mature use. The use in gross profit and gross profit margin for use.
Integrated Cattle Farm gross profit decreased by 26% to $6.7 million equivalent to a margin of 18.9%. Live cattle gross profit decreased by $3.9 million, offset by an increase in the gross profit of $1.6 million deboning quarter cut imported.
Project Development gross profit increased by 2% to $11.3 equivalent to a margin of 39.6%.
Slide 11 please. G&A expenses increased 11% reflecting ongoing heightened expenses related to various corporate exercises including up listing costs. Foreign currency translation loss of $4.6 million impacted comprehensive income during the third quarter.
China Central Bank or People’s Bank of China dictated the depreciation of RMB to U.S. dollar exchange rate. This currency devaluation does not affect U.S. GAAP earnings per share.
Slide 12 please. At the end of the quarter, the company had unrestricted cash and cash equivalents to $10 million and net working capital of $305 million. The debt equity rate remained strong.
Stockholders' equity increased by 24% year-over-year to $464.3 million or $24.66 per share, based on the weighted average number of fully diluted outstanding shares in the quarter, an increase of $21 million or $1.12 per share in Q3 2015. Increased sales of goods during the quarter resulted in increased current assets in accounts receivable.
Slide 13 please. Although accounts receivable increased in total, the accounts in receivable days outstanding decreased from 107 days in the second quarter to 95 days in the third quarter, resulting in higher working capital efficiency. The absolute increase in accounts receivable was mainly due to increase in Aquaculture and Product Development’s revenue. Accounts receivable ageing remained healthy throughout Q3.
Slide 14 please. Moving onto the cash flow statement. We maintained the cash balance for the second quarter throughout the third quarter. Cash flow from operations was invested in ageing working capital as discussed earlier and in the capital expenditure mainly SJAP amounting to US$3.9 million for the value-added process and capacity expansion OEM and $2.3 million for completion of HSA's cattle facilities including installations, fittings and feed storage.
Sebastian, let’s take the question now.
Question-and-Answer Session
Operator
In addition to Mr. Lee and Mr. Tiusanen, Mr. George Yap, Mr. Daniel Ritchey, Mr. Nils-Erik Sandberg, Mr. Anthony Soh, Dr. Anthony Ostrowski are now on the call. [Operator Instructions] And our first question comes from Robert [indiscernible]. Please go ahead. Your line is now open.
Thank you. First I would like to congratulate you on the decision to separate the aqua business. I think it’s very beneficial to the shareholder’s out of a value perspective. But I had some questions on the resources in the company. As I see, we are currently working on a number of important processes at the same time. The company is growing fast and we are much bigger than a couple of years ago. SJAP as you mentioned is going through a transitioning period. Parts of the company is being prepared for spin-offs and separate listing required DT processes that need attention et cetera.
We have also added new profit center at the same time as I feel that the development of what I feel is the most important assets to the mega prawn is absolutely fundamental to the equation on shareholder value going forward. My question is these are all parallel processes that should not cannibalize on each other. My understanding is that most of these processes historically has been round and handled by you Solomon. And I wonder how you are preparing to develop your organization to meet the demand that have to make sure that the company can handle these processes and maybe even ramp up the speed going forward. Can you please elaborate on how you’re meeting this situation?
Solomon Lee - Chairman and CEO
Robert, I just turned my phone back on.
Okay.
Solomon Lee - Chairman and CEO
To answer that question, I think, the company’s trend is to segregate each business or we group them so they can independently to work on their own operation and developments. So the spin of trend is part of the trend to make that happen. But in the meantime, I think the -- when each one of them being reorganized or reestablished for an IPO or whatever, that will be a lot of human resources to come into that effect.
We will need a much stronger team in all areas and expertise in all area to take each section move forward as quickly and as efficient as possible. And that is the plan for the company. But I’m hoping, it’s not too long before you see some of these operations being independently operated within 2016.
Okay. I understand that. But if you look at -- I understand that there is a lot more on your plate to be actually being able to deliver on all these areas. So I mean, it’s a lot of parallel process. Have you taken any steps in recruiting or taking additional management or staffing to the company to help you out with this? Because everyday you will have 24 hours and as you say you need a lot of resources, how are you -- are you doing, taking actions or steps in expanding your organization?
Solomon Lee - Chairman and CEO
Sure. We have and we already are mapping this kind of trends now. And we already are approaching or approached by a number of professionals you see. But whether we have evidenced, I mean, like Tony come and joined the group long before anything else happened, there will be many other experts, very good professional joining the company within 2016.
Okay. That sounds great. And by the way, I think Tony’s really great asset coming into the company. And it was also great to hear him talk on the investor tour. I just have one follow-up question. If this is -- is organizational wise, I always have a question on the board work and the corporate covenants, you’re saying in your opening remarks that you will comply with the standards of the Nordic and the lists that you are aiming for. What steps is being taking in -- to get the BOD work to comply with this files are are you looking to work in more active with the BOD or take some more BOD members on to the company or how are you thinking -- what are you actions on this part -- in this area?
Solomon Lee - Chairman and CEO
Yeah. We already approach a number of very good personalities and professional expert people to join the new division as they segregated from the group. I think eventually they would have their own board of directors as well as whatever stock exchange they are going to be enlisted, they will follow that stock exchange, government’s policy and the direction of that stock exchange.
So to give you an example, we are trending on the aquaculture operation side to be listed in Oslo in the near future hopefully. And that company will have their other independent board of directors and independent of CFO and CEO et cetera. As you said, I only got 24 hours a day. I don’t think I can handle all these, develop that additional professional people to come into help us.
Q -
All right. I think that sounds really good. I will leave the queue and let somebody else come in and ask some questions. Thank you.
Operator
Thank you. Our next question comes from [Patrick Nelson from Diago Holding] [ph]. Please go ahead. Your line is now open.
Thank you. I would like to have some comments on the quite large reduction in profit margin and gross profit at SJAP. Will the old model being restored or you have explained that this is a part of a strategic transition but -- and the transition is due to Angus beef which is growing fat for 550 day. My question is do we have to wait 550 days to show a profit in this segment?
Solomon Lee - Chairman and CEO
Not really because progressively, we are looking at other alternatives to increase the gross margin on the sector of that business, as well expanding the marketing sector to gain more higher profit selling commodities. Also at the same time with the new entrant coming up and with our cooperation with big supermarket chain that’s coming up. I think we don’t have to wait full cycle but there will be gradual increase to replace the downside of the live cattle trade at the moment.
Okay. I have one more question on the passage more for Bertil, I don’t know. But I would like if you could explain the process of the spinoff, how will it affect the shareholders’, when we will do you think we will be able to buy and sell the new spinoff? I guess that will be an X date and how do you -- could you explain the process?
Bertil Tiusanen - Chief Financial Officer
Yeah. I will try to do it. The contemplated spinoff shares in the new outlook of share entities will be distributed to the shareholders of the Siaf Inc through an external dividend, which will then paid out enhanced shares in the spinoff entity as opposed to cash. So, we’d still be, so that’s how I see it today.
And do you have any -- could you tell us anything about timing and when because this dividend has to be cleared before I guess and there will be a date and then later on, it will be actually dividend out.
Solomon Lee - Chairman and CEO
I mean, to talk about timing today is too early. We have just started the process and there is a lot of work to do to consider. But legally, it takes a while and so on and so on. So to put a timeframe today, I don’t think it’s serious at all. So, we have to come back when we will -- we will keep the shareholders informed during the process to see where we are on.
Okay. Thank you.
Operator
Thank you. Our next question comes from [indiscernible] from [indiscernible]. Please go ahead. Your line is now open.
Thank you. Thank you for taking my call. I also would like to congratulate on the decision to spinoff the aquaculture business. However, I have one question that I see as the main problem for SIAF and that’s management of the balance sheet, especially liquidity. SIAF has reported $340 million in current assets. Still it needs to take on short-term loans that are extremely expensive during the third quarter. You have to raise some money quickly and had to pay a monthly interest rates of 2.5% for that. I think that’s really a bad sign. How should investors believe that actually SIAF has got $340 million in current assets when it can’t maintain its balance sheet better?
Solomon Lee - Chairman and CEO
I would like someone from the Board to be able to answer that question. No one from the Board seems to be prepared to answer this question.
Bertil Tiusanen - Chief Financial Officer
No. I think I can answer this question that is for short-term working capital arrangement. It was due to a number of reasons during the month of August. But that is only a one off situation and I think for a company like us, with such a low debt equity ratio and for interim period of that short-term loan, I think it’s acceptable for that time being. But looking at the balance sheet of the company, we still have not, although we use a lot of working capital as well as CapEx but we still maintaining a very, very low debt ratio.
And over the year and we don’t pay any interest only where we have agreed this year. But in any case, it is still cheaper than many other loan that we will try to provide or seek into one full. So actually 2015, this is the most expensive short-term loan that we have to seek although is not my belief. That’s why you see now balance sheet. We have never for the last five years really to seek any loan, anything under this circumstances, I think is acceptable.
Yeah. But the problem is that you have $340 million in current assets, you shouldn’t be needing the sort of type fixed passive funding. You can reduce your current assets. Let the customers pay in advance before the discount maybe. Some of the inventories are not -- to be forced to take expensive loans. It’s a debt arrangement for the whole of balance sheet.
Solomon Lee - Chairman and CEO
Yeah. No, we will give fully. But as I said, circumstances prevailed at a certain particular time of the year. It just happened in August and that was one instance. I don’t think the company has the need to go on this kind of funding any much longer repeatedly. And that is precisely the point you see.
Based on $50 million trading facility that are secured by 200,000 shares. Is that all and can you tell me, which part can the Chinese lender can that lender sell the shares in the market?
Solomon Lee - Chairman and CEO
No. That’s not their mark. When we fully use up the credit facility, the trading projects facility, it will involve a lot more shares. But all the shares given, our restricted share and they are returnable to the company at the maturity of the loan. And when those shares return, we will just retire the effect of the treasuries.
But can the lender sell these shares in the meantime to reduce his risks on SIAF?
Solomon Lee - Chairman and CEO
No, because there are security. And I think the lender -- at the moment, all these shares are restricted and they cannot convert into free shares, number one. Number two, all these shares at the end of the date, when we retire them and we pay back the loan, they are entitle to a 20% profit -- not profit, 20% on the prevailing market rate to return to us. So it was very profitable in a way for these lenders. All for all, when you consider a trading facility, usually only earning a very low rate of return.
And so on more logical side, I don’t think they can sell anyway and/or they will sell anyway unless we default. But at the moment, our trading facility, for us is not easy to default because you return phase of our and there is lower run every 45 days. So it’s not a matter like conventional loan. It’s just a trading facility, which to increase our sales revenue as well as our gross profit at the end.
Daniel Ritchey - Independent Director
Let me mention too. This is Dan Ritchey by the way.
Yes.
Daniel Ritchey - Independent Director
With regards to the restricted shares, yeah, I mean technically after six months, if they seek to get those shares unrestricted, they would have to approach the company, get a legal opinion. Those shares technically then after could be traded. At the same time, remember these shares also, they carry a high strike price, higher than the current market price at this point in time. So it’s unlikely that at this stage anyway they would be even looking towards doing such a thing. At the same time because these type of arrangements usually have a revolving loan type of structure, it is in the best interest of the lender to continue business with the entity, whichever it is that’s borrowing from them to be able to maintain good relations and also to be able to make whole on the return on those shares once the loan has matured.
So there are other variables involved depending on the circumstances, depending on the time as Solomon alluded to. If for whatever the company were to default on the loan, those are the extenuating circumstances. Typically though, you would find that these are geared more toward a revolving line of credit, one which provides them security in the meantime but really only for those instances where we have this extreme such as a default going into effect, so they then have at least something to back themselves whether that’s the case.
Okay. Thank you. But seeing what’s happened in the third quarter when the company didn’t have the financial budgets in order needed to get some money at expensive rates. We see it here that the planning of the company for the liquidity is not that’s good as it should be and there is a risk that you will default on that because of bad planning.
Daniel Ritchey - Independent Director
There is no question that this type of lending isn’t what you would typically have if we were looking at more conventional funding, the type of loans that we would want to see, to be able to have. Now at the same time, I will say based on today versus two years ago, the credit conditions and whatnot that we have available to us are better than they were at that time. So as far as an example, the strike price on these shares today which is right now setting about 25% higher than the current market price is actually closer to 35% higher.
Means that there is at least a level of confidence from the lender that they are allowing a discount on the value so much so that they are allowing that much more risk to themselves only because they understand the conditions of the company today are better than where they were in the past. But that being said I agree with you and trust me, we do this on a regular basis. We convene and we discuss the loan conditions and what have you. So these kinds of arrangements become those last resort arrangements. And again, we cannot always be able to plan precisely and so simply what we are going to be required to be pay, especially with some of these import, export arrangements were being paid.
Just to be able to get the business, we have to be able to come up with cash almost immediately. In those instances, these are the types of arrangements that were being paid. But again as Solomon alluded to earlier, if we look at it in terms of total use of monies, this is a small percentage comparatively. Again not the ideal and I agree with that part of it. At the same time, we are not putting the company into a jeopardy of sorts that we will regret later by doing so. Actually, we look at the risk benefit and it comes out that what we are able to put these monies toward right now are able to produce a much better return for the company than the risk involved.
Okay. Thank you.
Operator
Thank you. And now, we will move onto some questions from the web. Please go ahead, speakers.
Bertil Tiusanen - Chief Financial Officer
Two question from SSE opportunity fund. First is now we are only four weeks away from 2016, the year when the Megafarm project is coming on stream. There is obviously been an enormous amount of money invested into this project. It has the potential to be transformational for the company in terms of earnings. Can you please just remind investors what you expect from the first phase of the Megafarm in terms of production, revenue and profit?
Solomon Lee - Chairman and CEO
I think I can answer that one. The Phase 1 is designed to produce 10,000 metric tons. As I said in the opening speech, we already completed, almost completed the stage one of the Phase 1. That will give 6,000 metric ton per year. That will happen sometime during 2016. And for the 10,000 metric ton, that will be in full swing, I reckon by Q1 or Q2 2017.
Now turning into turnover, at the current prices, I think the 6,000 metric ton will come close to a $100 million of turnover. It will help to make the turnover into 2016 by a $100 million. Now on gross profit wise in the prawn this way at the moment, it’s very lucrative, let’s put it this way. Under our system, we can comfortably achieve between 50% and 56% effective margins on the growing of the prawn.
So effectively, it’s a very good return of capital employed because of the project. So when we get to 10,000 metric ton by early 2017, that will again, increases revenue by another 4,000 metric ton a year. So, we can see the impact of the development. And at the same time, every time we feel we also have earn a development and consulting services fees. So, I think you’re right, that will play a very big part in the future of the company.
Bertil Tiusanen - Chief Financial Officer
Okay. A corollary question, you have come further on the second phase of the Megafarm build out than what at least I expected? When do you think the second phase could be completed and does that differ versus your original plan?
Solomon Lee - Chairman and CEO
No, I don’t so. I think it’s within our schedule. But the second phase, I think it will start mid-year, next year sometime. But because the second phase that we are building is almost redoubling the size of the Phase 1. They’re coming into 20,000 metric ton for that phase. So that will take at least one and a half years or more to complete that sector.
Bertil Tiusanen - Chief Financial Officer
Okay. One more from the webinar from Mr. [Weimin Zhang] [ph]. He asks, why has there been no announcement that Mr. Danielsson has been appointed to the Board of Directors has yet?
Daniel Ritchey - Independent Director
Well, I can answer that question as a fellow Board member. Look, Mr. Danielsson continues to work with the company on a strategic development he had done so prior to the announcement of him joining the Board. He has all the legal work in place to be able to provide consultation to the company. It’s just that with regard to the appointment, that was been done in conjunction with the proposed movement toward getting a listing in Oslo. And to make a very long story short and trust me, it’s been a long story.
The legal issues involved in helping to get him on the Board have to do with the interpretation with independents. There is requirement to have so many Independent Directors in order to be eligible to be listed. And because of the amount of involvement both in terms from the consulting side and also in terms of the investment side, there are some items which yet have to be ironed out. But again, Mr. Danielsson is involved with the company.
The company continues to receive some advice, especially because of his interest as a shareholder and as an investor. And so, yeah, there is nothing that other than the fact that the title isn’t there, Mr. Danielsson involvement with the company has continued and will continue until we can get this issue resolved.
Bertil Tiusanen - Chief Financial Officer
Okay. Let me ask another couple from the web because we have a few, not a lot of time. This is for Dr. Ostrowski. Question is how the RAS systems that the company uses produced so many fish or prawns in so little space? And how can we enhance the business value proposition of the company through sustainable products or other technologies in R&D?
Anthony Soh - Independent Director
Okay. Those are two big questions. This is Tony, can you hear me?
Bertil Tiusanen - Chief Financial Officer
Yes.
Anthony Soh - Independent Director
Okay. Okay. In the first question about these lots of production in the small space, let me start by saying that our A Power Recirculation Aquaculture System or APRAS as we call it is an 11 generation recirculation technology. And what that means is we acquired the technology about 11 years ago and made improvements upon the systems and operations over that time. So it’s essentially evolved from kind of the licensed process technology to our own IP, of knowhow that we have exclusive knowledge about.
Now to answer the question on production first, let’s -- you need to look at the advantage of RAS in general. Most obvious that into our RAS, allows you year around production because we can control the environment indoors on a year around basis. Now prawn production is seasonal, prawn or dam production is seasonal, limited in the case of warm water species production in Asia to about only two harvest cycles per year, typically between the months of April and December.
Within to our RAS, you get at least double the cycles or more depending upon your production strategy. Now our production strategy is what I like to call a phase cycle or partial harvest strategy. Our animals go through up to four different stages of phases during production in which they have moved sequentially into separate grow-out tanks along the way.
For instance, the animals that we would stock into a Stage 1 tank are growing for four weeks then move to separate Stage 2 tank, that Stage 1 tank is now empty and then restock with another batch of animals. Then Stage 2 animals move into Stage 3 tanks, Stage 1 to Stage 2 and then another batch of animals are restock with the open Stage 1 tank. So this cycle kind of care phasing continues with other batches to four grow-out stages of phases. So, you can easily calculate that more animals can come out of the single tank by this phasing strategy.
In addition, as our animals are growing that certain phases along the way a portion of the batch is harvested and sold. This is done to reduce the density or actually the biomass of animals. So it’s not the overstock biomass into the next phase or next tank when those animals are moved. It also allows you to overstock animals in a previous phase, because you will be calling out prior to stocking in the next phase.
So this is therefore kind of provides salable product even before the entire batch reaches its final harvest size. This kind of phase partial harvest approach is as opposed to all-in all-out strategy Prawn Culture.
Again, Prawn Culture gives you only about two, maybe three harvest a year, limited by the season, but also by the fact that’s very difficult to do a strategize partial harvest in larger prawns. They use nets and it causes too much stress on the animals.
In total, our phase partial harvest strategy gives us of an average of about 14 cycles per year with product being yielded along each phase. So the calculations I have done is that our phase partial harvest strategy gives us yields in terms of metric tons per unit area per year of up to 115 times our traditional prawn culture.
In addition, because we are indoors and that subject to the natural environmental fluctuations in weather and temperature, we have a stable living environment and therefore there is less stress on the animal making them less acceptable to disease.
Further our animals are not exposed to a lot of disease that occurs on the outside, because we are simply able to physically exclude many of the vectors or carriers of the disease from our system, as long as we employee good biosecurity practices. Therefore, our survival rates are significantly higher than in outdoor prawn culture.
So, in summary or in short, the higher yields that we’re able to achieve are because production in the RAS prawn or RAS system is year around, more reliable and more consistent than prawn culture in our [APRAST] [ph] system in particular and phase partial harvest strategy in particular gives significantly higher yields with greater survival and better growth than prawn culture.
To address your second question, on the business value proposition on sustainable production, let me start by saying that the word sustainable in the context of our farming business means that our products are produced in a way that is biologically, environmentally, socially and economically responsible. It means that biologically we provide the best husbandry practices in a biosecure environment and use initially healthy animals, which reduces the risk of them contracting disease in our systems.
It means environmentally that we minimize the use of resources such as water, electricity feed and recycle what we can. It means that socially that we ensure the safety and good working conditions of our staff. And certainly, last but not least, it means economically that we do all this in a most efficient way to provide a good profit margin. We’re not doing this just to be ecologically or environmentally friendly, we do it because it makes economic strengths.
Now many companies can and do claim that they’re sustainable producers. However, a lot of times these are just claims. Claims are not verified independently. Take for instance in the U.S., there were claims of organic food production during the early 1970s as you recall and this eventually led to the establishment of organic standards by the USDA 1990 and eventually, the national organic programs that provides an official certification sales that was around 2000. This was all largely done to avoid fraud that had reproductions at the industry on the whole at the time.
Our value proposition really to have third-party verification or certification of our processes. It doesn’t mean we’re verifying the products are organic or whatever, which is really or loosely use term a wide, but that we verify the process by which we produce the animals are sustainable or sustainably done, as I just defined.
Certification also includes the ability to trace our products to the entire production and value change. This is really central to our farm to play concept of the company. It doesn’t mean that we’re involved in businesses from the farm to the restaurant, but that consumers can trace the history and process of our products from the farm to the restaurants. This ensures that our wholesaler/retailer consumer patriot is actually buying a sustainable SIAF product.
Then what does that sustainability means to the bottomline, while in general additional margin that one gets for a third-party verified product is marginal if it at all. In fact, in vegetable or domestic animal meat production margins for organic products are not that much greater as well, since production cost tend to be higher.
So we would not expect our margins to rocket once we get certified. But in fact research on this subject in the seafood industry which is agricultures included indicates that certification ensures existing markets and actually grows new markets, and there is a rapidly growing list of companies worldwide that are becoming certified in response to consumer demands for sustainability.
If it don’t become certified, it will become harder to compete and you’ll have a very difficult time to try to export because more and more countries are now requiring certification of all seafood production while catch included. So certification will become more important for us as a mega farm grows in capacity to the point that we might consider export markets.
We will certainly need to consider certification domestically because of the rising middle class in China, which is demanding safer more wholesome and more sustainable agriculture products and because the Chinese Government has included essentially sustainability that’s part of their modern agriculture systems development in their 12th five-year plan. So this is going to be extremely important going forward in China.
Now our SAIF, our company excels and therefore it’s a value proposition or sustainability claim is that we are doing all of this indoors and by far what will be the world’s largest RAS facility. We can claim many first and because of model -- and become model to China anywhere in the world less than 0.5% of all world agriculture production is being done in RAS system.
So that will open up many possibilities not only for sale but partnership, venture, licensing, franchising even as we exploit ways to protect RFP. So we have a long way to go with many opportunities ahead.
The first step is to begin to verify the sustainability of our production process based on defined international standards. To me that’s far more meaningful in reaching in terms of market penetration then seeking any kind of organic labeling which will varies from country to country and in fact for seafood it’s still not be find in the U.S. and we are U.S. incorporated company. So I hope that explains value proposition. Thank you.
Solomon Lee - Chairman and CEO
Yeah. Thank you, Anthony. Let’s turn it back to the phone calls.
Operator
Thank you. So the next question or the phone call from [Ronald Tishkin] [ph] from RHI investors. Please go ahead. Your line is now open.
Hi, guys. Hey. Thank you very much for the presentation today and [indiscernible]. Question on margins on yields, I understand that we sold yields earlier and so they didn’t quite have value for [indiscernible]. But now for obviously the price up considerably in that area, I was wondering, that’s the question one? The question two would be on the open dam [APRAST] [ph] system. What you would project adding some results from the experiment in the company, even sell at market price? Thank you very much.
Solomon Lee - Chairman and CEO
So, Anthony, do you want to handle that on the calls, right now.
Dr. Anthony Ostrowski - Chief Scientific Officer
Yeah. But I didn’t quite hear the full question. I heard about the first one. But anyway, the margin on the yield for the region through quarter is going down is because the short supply of the yields baby sintering of all the quarter revenues. Because of that we already got some system already got new. So we have to go more. I think use instead and with bigger yields to go into our time cycle, of course, the course of the bigger yield is much higher and that reduce our corporate margin on the yield for this few quarter.
Thank you. And so that addresses both the cost and the sales quite different from a year ago. The second question we had to do with day press system and the open dam. I think we finish that in fish farm too. Anyhow that’s going to be kind of new experiment for the first quarter when do you anticipate being able to see results on that?
Dr. Anthony Ostrowski - Chief Scientific Officer
That one will come back to the production ratio. We just put in the roof on. We test last week in all engineering and all the mechanical side and all the water last week. So as soon as the roof is on, we can start production. And again, that production is mainly concentrated on Mexican white, so the end time cycle for that is not really long between 9 to 10 weeks. We will start soon the sales of those operations.
Very good. Thank you very much. And again I’d like to also applaud you guys on deciding the spin off the agriculture -- our aquaculture division. I think that is good for the shareholders and thank you very much for that.
Operator
Thank you. Our next question comes from Andrew Wang. He is a Private Investor. Please go ahead. Your line is now open. Mr. Andrew Wang your line is now open if you wish to ask your question. No response from Mr. Wang. We’ll move over to [Brad Moore] [ph]. Please go ahead. Your line is now open. [Brad Moore from Ebak] [ph]. Your line is now open. If you have any question please go ahead. There has been no response from Brad Moore. We will move forward with Robert [indiscernible]. Your line is now open.
Hi. Thank you. I have question and that was -- see here -- one second. One second -- yes. Yes, on the transitioning of the SJAP and the herds. I wonder what impact that has on the capital needs going forward, I’m thinking about both working capital and any possible extra capital that you will need going forward. How will this look over the next 12 months? That will be a question to Solomon.
Solomon Lee - Chairman and CEO
I think eventual answer to show that CapEx and the working capital eventual CapEx and working capital needs so far SJAP especially the program we have met for the SJAP for the coming two or three years. Now I think the answer would be based on the timing of the spin-off of SJAP.
If that is successful within our planned timeframe, I think we should not have any problem with SJAP’s expansion program, which we have not said publicly before. But I think it’s always in my mind because the cattle industry situation in China. We will always -- how should we say -- we will always under imported pressure.
And we have been a young country with the cattle growing and again most of our cattle are being grown majority in the northern part either east-north, west-north or northern part of China, which always have a long winter. That means when we produce good cattle life, we really need a lot of additional stock fees and that increase the cost of the growing cattle in China.
So, I think we will subject to pressure on competition from a way. So, it is always in my mind. Okay. We can capitalize on that by importing more cattle and involving in that activity. A number two is to increase the quality of our own cattle. But our ultimate aim is because I think the delivery at the sectors were important because the live cattle seems we cannot complete freely from the other external imports.
And at the same time that means we want to export our cattle it will be very difficult. But however, under the condition in China, we do more value added that will be absolutely beneficial for the higher margin of SJAP we get in the future. So, therefore, there are two summary here.
Number one, we try the hardest to have SJAP spin-off in the China listing as soon as possible. So we can complete our expansion program. So we can get into the value added sector to generate much, much higher profit margin. And with this value added sector, we can export and pretty assure on the condition the value added products on China would be exportable and we’ll generate much better profit margin than just operation on beef.
Okay. Understand. I can understand what your aim is. But looking at specific transition from your current period to the higher quality beef, will that require an additional working capital to complete that transition or would that require to run additional CapEx of substantial amount going forward?
Solomon Lee - Chairman and CEO
Yeah. On the CapEx side is amenable but working capital definitely.
Q –
Okay. I understand. You mean the working capital for the import for the two transitions. What are we talking about, Lee? Do you have any numbers or?
Solomon Lee - Chairman and CEO
Yeah. We have expect instead of doing a herd of 20,000 as we doing now. We mostly reduce the heard to about 12,000 within the next two or three years. So the working capital by increasing that and to sustain that over that period is quite sizeable.
Q –
All right. Okay. So, you don’t have any numbers that you want to make public on what kind of working capital -- additional working capital you need to make the transition?
Solomon Lee - Chairman and CEO
Not really because there is a quite a number of variables in between.
Okay.
Solomon Lee - Chairman and CEO
We are planning. We are working on the program to reduce that when that happens and that program also subject to number of variables.
All right. Okay. Thank you.
Operator
Thank you. That was the final question. So I’ll hand the conference back to you speakers.
Solomon Lee - Chairman and CEO
We thank you for our shareholder and we’re looking forward to report more [Technical Difficulty] Please [indiscernible] and call and [Technical Difficulty]. Thank you, Sebastian.
Operator
Thank you. This now concludes our conference call. You may now disconnect your lines.
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Sino Agro's (SIAF) CEO Solomon Lee on Q3 2015 Results - Earnings Call Transcript
Nov. 30, 2015 5:20 PM ET | About: Sino Agro Food, Inc. (SIAF)
Executives
Solomon Lee - Chairman and CEO
Bertil Tiusanen - Chief Financial Officer
Dr. Anthony Ostrowski - Chief Scientific Officer
George Yap - Independent Director
Nils-Erik Sandberg - Independent Director
Daniel Ritchey - Independent Director
Anthony Soh - Independent Director
Analysts
Sino Agro Food, Inc. (OTCQB:SIAF) Q3 2015 Results Earnings Conference Call November 30, 2015 10:00 AM ET
Operator
Welcome to Sino Agro Food's Third Quarter 2015 Financial Results Conference Call. During this call, CEO, Solomon Lee will provide an overview of results from operations and highlights for the quarter ended September 30, 2015. He will turn the call over to the Chief Financial Officer for Sino Agro Food, Mr. Bertil Tiusanen. And then we will open the lines for question-and-answer session.
All forward-looking disclaimers included in the company's third quarter 2015 financial and operating results press release dated November 16, 2015, which is available on the company’s website at 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 in the 2014 10-K filing available on 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 Foods Incorporated; Mr. Bertil Tiusanen, the Chief Financial Officer; Dr. Anthony Ostrowski, the Chief Scientific Officer; members of the Board of Directors; Mr. George Yap; Mr. Nils-Erik Sandberg, Mr. Daniel Ritchey; and Mr. Anthony Soh. Questions will come from the phone lines and from those submitted on the web facility. We will have an hour for the call, in the interest of fairness, please ask only one or two questions at anytime selected from the queue.
I would now like to introduce Mr. Solomon Lee. Solomon, please go ahead. Mr. Solomon, I give the -- hand over to you.
Solomon Lee - Chairman and CEO
Okay. Thank you, Sebastian, and thanks to everyone for attending today's conference call. Please turn to slide four. Quarterly revenue for the third quarter was $124.7 million, an increase of 16% over the previous year and 37% over the previous quarter.
Revenue for the Project Development increased by 15% to $28.4 million, which is more than three times the previous quarter. The Zhongshan New Prawn Project saw improvement compared to Q2 2015 and accounted for $19.4 million or 68% of the Product Development revenue in the quarter.
Please turn to slide five, during and subsequent to the third quarter, a number of events took place that will shape the near to immediate term outlook. On the financing, during the quarter, we established the three credit facility with the Shanghai and Honk Kong based import and export entity that will increase the working capital for the import/export dilution by up to $15 million, ensuring a faster revenue growth rate for the remaining months of 2015 and into 2016.
The facility has helped us to secure the exclusive agency for the supply of CAAB branded grain fed Angus cattle by Thomas Foods, which is one of the best supplier of CAAB grain fed Angus in Australia. In term, this will help to establish us into an outstanding supplier of quality beef from Australia.
The trading credit facility is characterized by shares. The terms of the agreement mandate that the share return to the company upon repayment at which time the company will retire those shares.
In later October, The Agricultural Development Bank of China extended SJAP's bank facility to a total RMB90 million. Including a project loan up to RMB35 million, which can be apply for purposes of new development, mergers or acquisition, and which maybe converted to a long-term debt at the certain conditions.
On the business operation and development side, I would like to take this opportunity to talk briefly about The Zhongshan New Prawn Project. We are able to undertake this largest land based agricultural and hydroponic project in the world, because of our intellectual property and our development expertise, and because we have demonstrate economic success at our existing fish and prawn farms with many years of preparation and groundwork building such fundamentals.
In this respect, we are on the verge of completing Phase 1 Stage 1 soon. This stage will eventually allow the production of 6,000 metric tons of prawns per year. Based on that alone, we will be the largest RAS prawn producers in the world and we demonstrate commercial viability and substantial ability, producing high quality, safe food from a fully ecologically sound and are mentally friendly project.
Although, there were delays for initial stocking due to various reasons, for example, the weather and some human errors, but that we think is a normal and acceptable events for such a big project.
However, whatever we learn from such progress will certainly help to improve our knowledge to avoid similar problem from recurring in the future and to allow us to determine more accurate time, projections and can speed our work and progress in the future.
As we reported in our 2015 10-Q, Prawn farm 2 development of the new RAS covered dams on 20,000 square meter broker land using our newly improved APM technology for open dams is about complete. The roofing being installed currently, the aim of this development is to reduce overall costs of APM farms by converting traditional farms into RAS farms. That will improve the product capacity aiming at 6-7 harvests per year instead up to 2-3 harvests per year of the open dam using traditional agriculture systems currently used in China. Additionally, we will reduce costs in modern power usage while maximizing land application.
The company is optimistic that the new improved APM technologies for open dams will open the door for the company to speed up future development of The Zhongshan New Project with the ability to save a big portion of capital expenditures during initial years of recent development. Thus cash flow will improve by having more production and sales that will help to complete the projects overall development sooner than originally anticipated.
In this respect, all of our said work will improve the company’s image as one of the leader in the RAS prawn growing development and operation, and more so with the help of Dr. Anthony Ostrowski in all aspect of the industry efficiency to produce higher quality products.
Also reported in Q3 2015 10-Q, SJAP is expanding to increase its deboning capacity to 12,500 metric ton per year and its freezing capacity to 10,000 metric ton per year. Part of the finish developments are now operational, thus allowing SJAP to debone more quarter cut beef and to address more varieties of beef imported from Australia. All three areas will help the company to build good fundamentals for the near and longer term future.
Next slide please, on the corporate work and exercises, having received feedback from our current institutional investors and major retail shareholders, as well as advisors. We have decided to spin-off agricultural assets and seek a separate listing for dam on the Oslo Stock Exchange.
In addition to fulfilling our intention to diverse several assets in the coming year this approach carry several benefits. We will create a pure-play company with considerable assets and high growth potential.
We target a listing in Norway, the leading seafood capital market globally. We will form this company to conform to Nordic governance standards and exchange requirements, circumventing the complexity and differences of Chinese structure being explained and engineered to compile.
I think it is important for shareholder to remember that above and beyond the company’s execution to achieve growth, our efforts to spin-off asset and to list this on respectable and an appropriate marketplaces, our aim at transparency and improve value visibility more in line with our peer groups. We are now pursuing a new track with cost listing of the company -- of the group company.
Now I will hand the call over to our CFO, who will provide more detail on our operational and financial performance in the third quarter. Bertil please?
Bertil Tiusanen - Chief Financial Officer
Thank you, Solomon. Slide eight please, I characterize last quarter result as a bump in the growth, indeed this quarter showed a return to growth, as revenue showed a 7% higher than the second quarter. So the primarily drivers was Project Development revenue over three times that to the second quarter and the record high sales of goods.
Gross profit also increased by 47% over the second quarter to $32.3 million. However, gross profit growth continues to lag revenue growth due to slight decrease in margins, mainly because of the fluctuation sales mix in agriculture segment and [indiscernible] beef prices.
We are very active addressing those through transitioning to higher margin products. Going forward, the lowest contributor to gross profit growth will be the incremental seafood sales from The Zhongshan New Prawn Project.
Slide nine please. This quarter again demonstrated that investments in capacity and working capital continued to build higher and higher sales. Revenue for the third quarter increased by 16% to a record of $124.7 million.
Agriculture sales were good, increased by 24% to $28.8 million. The increase is mainly due to higher volumes from mixed seafood and prawns. Demonstrating that’s the nature of RAS, several new, higher profit margins in the fresh water fish were sold during the quarter, offsetting the $5.5 million decrease in eel sales.
Integrated Cattle Farm sale of goods increased by 27% to $35.5 million mainly due to increased deboning of imported beef quadrupling production compared to Q3 2014. The increase in deboning volumes substantially overcome or offset the effect of lower prices of live cattle on revenues.
Gross profit and gross margin well accompanied transition is herd to premium beef. Revenue from Project Development increased by 15% to $28.4 million at a rate exceeding three times the previous quarter. Weather improved in August, and the company completed roof build out to allow interior constructions to continue independent of weather conditions. The Zhongshan New Prawn Project accounted for $19.4 million or 68% of the Product Development revenue we will remind that coming from Prawn farm 2.
Slide 10 please. Gross profit decreased 7% to $32.3 million, equivalent to a margin of 25.9%. The decrease was mainly due to lower margins at the Integrated Cattle Farm and Aquaculture segments.
Aquaculture gross profit decreased 22% to $5.7 million equivalent to a margin of 19.7%. The decrease was mainly due to lower eel gross profit offset by an increase in mixed seafood gross profit. The company supplemented low supply of grown-out eels due to long eel leather supply in 2015 with finance page grow out to more mature use. The use in gross profit and gross profit margin for use.
Integrated Cattle Farm gross profit decreased by 26% to $6.7 million equivalent to a margin of 18.9%. Live cattle gross profit decreased by $3.9 million, offset by an increase in the gross profit of $1.6 million deboning quarter cut imported.
Project Development gross profit increased by 2% to $11.3 equivalent to a margin of 39.6%.
Slide 11 please. G&A expenses increased 11% reflecting ongoing heightened expenses related to various corporate exercises including up listing costs. Foreign currency translation loss of $4.6 million impacted comprehensive income during the third quarter.
China Central Bank or People’s Bank of China dictated the depreciation of RMB to U.S. dollar exchange rate. This currency devaluation does not affect U.S. GAAP earnings per share.
Slide 12 please. At the end of the quarter, the company had unrestricted cash and cash equivalents to $10 million and net working capital of $305 million. The debt equity rate remained strong.
Stockholders' equity increased by 24% year-over-year to $464.3 million or $24.66 per share, based on the weighted average number of fully diluted outstanding shares in the quarter, an increase of $21 million or $1.12 per share in Q3 2015. Increased sales of goods during the quarter resulted in increased current assets in accounts receivable.
Slide 13 please. Although accounts receivable increased in total, the accounts in receivable days outstanding decreased from 107 days in the second quarter to 95 days in the third quarter, resulting in higher working capital efficiency. The absolute increase in accounts receivable was mainly due to increase in Aquaculture and Product Development’s revenue. Accounts receivable ageing remained healthy throughout Q3.
Slide 14 please. Moving onto the cash flow statement. We maintained the cash balance for the second quarter throughout the third quarter. Cash flow from operations was invested in ageing working capital as discussed earlier and in the capital expenditure mainly SJAP amounting to US$3.9 million for the value-added process and capacity expansion OEM and $2.3 million for completion of HSA's cattle facilities including installations, fittings and feed storage.
Sebastian, let’s take the question now.
Question-and-Answer Session
Operator
In addition to Mr. Lee and Mr. Tiusanen, Mr. George Yap, Mr. Daniel Ritchey, Mr. Nils-Erik Sandberg, Mr. Anthony Soh, Dr. Anthony Ostrowski are now on the call. [Operator Instructions] And our first question comes from Robert [indiscernible]. Please go ahead. Your line is now open.
Thank you. First I would like to congratulate you on the decision to separate the aqua business. I think it’s very beneficial to the shareholder’s out of a value perspective. But I had some questions on the resources in the company. As I see, we are currently working on a number of important processes at the same time. The company is growing fast and we are much bigger than a couple of years ago. SJAP as you mentioned is going through a transitioning period. Parts of the company is being prepared for spin-offs and separate listing required DT processes that need attention et cetera.
We have also added new profit center at the same time as I feel that the development of what I feel is the most important assets to the mega prawn is absolutely fundamental to the equation on shareholder value going forward. My question is these are all parallel processes that should not cannibalize on each other. My understanding is that most of these processes historically has been round and handled by you Solomon. And I wonder how you are preparing to develop your organization to meet the demand that have to make sure that the company can handle these processes and maybe even ramp up the speed going forward. Can you please elaborate on how you’re meeting this situation?
Solomon Lee - Chairman and CEO
Robert, I just turned my phone back on.
Okay.
Solomon Lee - Chairman and CEO
To answer that question, I think, the company’s trend is to segregate each business or we group them so they can independently to work on their own operation and developments. So the spin of trend is part of the trend to make that happen. But in the meantime, I think the -- when each one of them being reorganized or reestablished for an IPO or whatever, that will be a lot of human resources to come into that effect.
We will need a much stronger team in all areas and expertise in all area to take each section move forward as quickly and as efficient as possible. And that is the plan for the company. But I’m hoping, it’s not too long before you see some of these operations being independently operated within 2016.
Okay. I understand that. But if you look at -- I understand that there is a lot more on your plate to be actually being able to deliver on all these areas. So I mean, it’s a lot of parallel process. Have you taken any steps in recruiting or taking additional management or staffing to the company to help you out with this? Because everyday you will have 24 hours and as you say you need a lot of resources, how are you -- are you doing, taking actions or steps in expanding your organization?
Solomon Lee - Chairman and CEO
Sure. We have and we already are mapping this kind of trends now. And we already are approaching or approached by a number of professionals you see. But whether we have evidenced, I mean, like Tony come and joined the group long before anything else happened, there will be many other experts, very good professional joining the company within 2016.
Okay. That sounds great. And by the way, I think Tony’s really great asset coming into the company. And it was also great to hear him talk on the investor tour. I just have one follow-up question. If this is -- is organizational wise, I always have a question on the board work and the corporate covenants, you’re saying in your opening remarks that you will comply with the standards of the Nordic and the lists that you are aiming for. What steps is being taking in -- to get the BOD work to comply with this files are are you looking to work in more active with the BOD or take some more BOD members on to the company or how are you thinking -- what are you actions on this part -- in this area?
Solomon Lee - Chairman and CEO
Yeah. We already approach a number of very good personalities and professional expert people to join the new division as they segregated from the group. I think eventually they would have their own board of directors as well as whatever stock exchange they are going to be enlisted, they will follow that stock exchange, government’s policy and the direction of that stock exchange.
So to give you an example, we are trending on the aquaculture operation side to be listed in Oslo in the near future hopefully. And that company will have their other independent board of directors and independent of CFO and CEO et cetera. As you said, I only got 24 hours a day. I don’t think I can handle all these, develop that additional professional people to come into help us.
Q -
All right. I think that sounds really good. I will leave the queue and let somebody else come in and ask some questions. Thank you.
Operator
Thank you. Our next question comes from [Patrick Nelson from Diago Holding] [ph]. Please go ahead. Your line is now open.
Thank you. I would like to have some comments on the quite large reduction in profit margin and gross profit at SJAP. Will the old model being restored or you have explained that this is a part of a strategic transition but -- and the transition is due to Angus beef which is growing fat for 550 day. My question is do we have to wait 550 days to show a profit in this segment?
Solomon Lee - Chairman and CEO
Not really because progressively, we are looking at other alternatives to increase the gross margin on the sector of that business, as well expanding the marketing sector to gain more higher profit selling commodities. Also at the same time with the new entrant coming up and with our cooperation with big supermarket chain that’s coming up. I think we don’t have to wait full cycle but there will be gradual increase to replace the downside of the live cattle trade at the moment.
Okay. I have one more question on the passage more for Bertil, I don’t know. But I would like if you could explain the process of the spinoff, how will it affect the shareholders’, when we will do you think we will be able to buy and sell the new spinoff? I guess that will be an X date and how do you -- could you explain the process?
Bertil Tiusanen - Chief Financial Officer
Yeah. I will try to do it. The contemplated spinoff shares in the new outlook of share entities will be distributed to the shareholders of the Siaf Inc through an external dividend, which will then paid out enhanced shares in the spinoff entity as opposed to cash. So, we’d still be, so that’s how I see it today.
And do you have any -- could you tell us anything about timing and when because this dividend has to be cleared before I guess and there will be a date and then later on, it will be actually dividend out.
Solomon Lee - Chairman and CEO
I mean, to talk about timing today is too early. We have just started the process and there is a lot of work to do to consider. But legally, it takes a while and so on and so on. So to put a timeframe today, I don’t think it’s serious at all. So, we have to come back when we will -- we will keep the shareholders informed during the process to see where we are on.
Okay. Thank you.
Operator
Thank you. Our next question comes from [indiscernible] from [indiscernible]. Please go ahead. Your line is now open.
Thank you. Thank you for taking my call. I also would like to congratulate on the decision to spinoff the aquaculture business. However, I have one question that I see as the main problem for SIAF and that’s management of the balance sheet, especially liquidity. SIAF has reported $340 million in current assets. Still it needs to take on short-term loans that are extremely expensive during the third quarter. You have to raise some money quickly and had to pay a monthly interest rates of 2.5% for that. I think that’s really a bad sign. How should investors believe that actually SIAF has got $340 million in current assets when it can’t maintain its balance sheet better?
Solomon Lee - Chairman and CEO
I would like someone from the Board to be able to answer that question. No one from the Board seems to be prepared to answer this question.
Bertil Tiusanen - Chief Financial Officer
No. I think I can answer this question that is for short-term working capital arrangement. It was due to a number of reasons during the month of August. But that is only a one off situation and I think for a company like us, with such a low debt equity ratio and for interim period of that short-term loan, I think it’s acceptable for that time being. But looking at the balance sheet of the company, we still have not, although we use a lot of working capital as well as CapEx but we still maintaining a very, very low debt ratio.
And over the year and we don’t pay any interest only where we have agreed this year. But in any case, it is still cheaper than many other loan that we will try to provide or seek into one full. So actually 2015, this is the most expensive short-term loan that we have to seek although is not my belief. That’s why you see now balance sheet. We have never for the last five years really to seek any loan, anything under this circumstances, I think is acceptable.
Yeah. But the problem is that you have $340 million in current assets, you shouldn’t be needing the sort of type fixed passive funding. You can reduce your current assets. Let the customers pay in advance before the discount maybe. Some of the inventories are not -- to be forced to take expensive loans. It’s a debt arrangement for the whole of balance sheet.
Solomon Lee - Chairman and CEO
Yeah. No, we will give fully. But as I said, circumstances prevailed at a certain particular time of the year. It just happened in August and that was one instance. I don’t think the company has the need to go on this kind of funding any much longer repeatedly. And that is precisely the point you see.
Based on $50 million trading facility that are secured by 200,000 shares. Is that all and can you tell me, which part can the Chinese lender can that lender sell the shares in the market?
Solomon Lee - Chairman and CEO
No. That’s not their mark. When we fully use up the credit facility, the trading projects facility, it will involve a lot more shares. But all the shares given, our restricted share and they are returnable to the company at the maturity of the loan. And when those shares return, we will just retire the effect of the treasuries.
But can the lender sell these shares in the meantime to reduce his risks on SIAF?
Solomon Lee - Chairman and CEO
No, because there are security. And I think the lender -- at the moment, all these shares are restricted and they cannot convert into free shares, number one. Number two, all these shares at the end of the date, when we retire them and we pay back the loan, they are entitle to a 20% profit -- not profit, 20% on the prevailing market rate to return to us. So it was very profitable in a way for these lenders. All for all, when you consider a trading facility, usually only earning a very low rate of return.
And so on more logical side, I don’t think they can sell anyway and/or they will sell anyway unless we default. But at the moment, our trading facility, for us is not easy to default because you return phase of our and there is lower run every 45 days. So it’s not a matter like conventional loan. It’s just a trading facility, which to increase our sales revenue as well as our gross profit at the end.
Daniel Ritchey - Independent Director
Let me mention too. This is Dan Ritchey by the way.
Yes.
Daniel Ritchey - Independent Director
With regards to the restricted shares, yeah, I mean technically after six months, if they seek to get those shares unrestricted, they would have to approach the company, get a legal opinion. Those shares technically then after could be traded. At the same time, remember these shares also, they carry a high strike price, higher than the current market price at this point in time. So it’s unlikely that at this stage anyway they would be even looking towards doing such a thing. At the same time because these type of arrangements usually have a revolving loan type of structure, it is in the best interest of the lender to continue business with the entity, whichever it is that’s borrowing from them to be able to maintain good relations and also to be able to make whole on the return on those shares once the loan has matured.
So there are other variables involved depending on the circumstances, depending on the time as Solomon alluded to. If for whatever the company were to default on the loan, those are the extenuating circumstances. Typically though, you would find that these are geared more toward a revolving line of credit, one which provides them security in the meantime but really only for those instances where we have this extreme such as a default going into effect, so they then have at least something to back themselves whether that’s the case.
Okay. Thank you. But seeing what’s happened in the third quarter when the company didn’t have the financial budgets in order needed to get some money at expensive rates. We see it here that the planning of the company for the liquidity is not that’s good as it should be and there is a risk that you will default on that because of bad planning.
Daniel Ritchey - Independent Director
There is no question that this type of lending isn’t what you would typically have if we were looking at more conventional funding, the type of loans that we would want to see, to be able to have. Now at the same time, I will say based on today versus two years ago, the credit conditions and whatnot that we have available to us are better than they were at that time. So as far as an example, the strike price on these shares today which is right now setting about 25% higher than the current market price is actually closer to 35% higher.
Means that there is at least a level of confidence from the lender that they are allowing a discount on the value so much so that they are allowing that much more risk to themselves only because they understand the conditions of the company today are better than where they were in the past. But that being said I agree with you and trust me, we do this on a regular basis. We convene and we discuss the loan conditions and what have you. So these kinds of arrangements become those last resort arrangements. And again, we cannot always be able to plan precisely and so simply what we are going to be required to be pay, especially with some of these import, export arrangements were being paid.
Just to be able to get the business, we have to be able to come up with cash almost immediately. In those instances, these are the types of arrangements that were being paid. But again as Solomon alluded to earlier, if we look at it in terms of total use of monies, this is a small percentage comparatively. Again not the ideal and I agree with that part of it. At the same time, we are not putting the company into a jeopardy of sorts that we will regret later by doing so. Actually, we look at the risk benefit and it comes out that what we are able to put these monies toward right now are able to produce a much better return for the company than the risk involved.
Okay. Thank you.
Operator
Thank you. And now, we will move onto some questions from the web. Please go ahead, speakers.
Bertil Tiusanen - Chief Financial Officer
Two question from SSE opportunity fund. First is now we are only four weeks away from 2016, the year when the Megafarm project is coming on stream. There is obviously been an enormous amount of money invested into this project. It has the potential to be transformational for the company in terms of earnings. Can you please just remind investors what you expect from the first phase of the Megafarm in terms of production, revenue and profit?
Solomon Lee - Chairman and CEO
I think I can answer that one. The Phase 1 is designed to produce 10,000 metric tons. As I said in the opening speech, we already completed, almost completed the stage one of the Phase 1. That will give 6,000 metric ton per year. That will happen sometime during 2016. And for the 10,000 metric ton, that will be in full swing, I reckon by Q1 or Q2 2017.
Now turning into turnover, at the current prices, I think the 6,000 metric ton will come close to a $100 million of turnover. It will help to make the turnover into 2016 by a $100 million. Now on gross profit wise in the prawn this way at the moment, it’s very lucrative, let’s put it this way. Under our system, we can comfortably achieve between 50% and 56% effective margins on the growing of the prawn.
So effectively, it’s a very good return of capital employed because of the project. So when we get to 10,000 metric ton by early 2017, that will again, increases revenue by another 4,000 metric ton a year. So, we can see the impact of the development. And at the same time, every time we feel we also have earn a development and consulting services fees. So, I think you’re right, that will play a very big part in the future of the company.
Bertil Tiusanen - Chief Financial Officer
Okay. A corollary question, you have come further on the second phase of the Megafarm build out than what at least I expected? When do you think the second phase could be completed and does that differ versus your original plan?
Solomon Lee - Chairman and CEO
No, I don’t so. I think it’s within our schedule. But the second phase, I think it will start mid-year, next year sometime. But because the second phase that we are building is almost redoubling the size of the Phase 1. They’re coming into 20,000 metric ton for that phase. So that will take at least one and a half years or more to complete that sector.
Bertil Tiusanen - Chief Financial Officer
Okay. One more from the webinar from Mr. [Weimin Zhang] [ph]. He asks, why has there been no announcement that Mr. Danielsson has been appointed to the Board of Directors has yet?
Daniel Ritchey - Independent Director
Well, I can answer that question as a fellow Board member. Look, Mr. Danielsson continues to work with the company on a strategic development he had done so prior to the announcement of him joining the Board. He has all the legal work in place to be able to provide consultation to the company. It’s just that with regard to the appointment, that was been done in conjunction with the proposed movement toward getting a listing in Oslo. And to make a very long story short and trust me, it’s been a long story.
The legal issues involved in helping to get him on the Board have to do with the interpretation with independents. There is requirement to have so many Independent Directors in order to be eligible to be listed. And because of the amount of involvement both in terms from the consulting side and also in terms of the investment side, there are some items which yet have to be ironed out. But again, Mr. Danielsson is involved with the company.
The company continues to receive some advice, especially because of his interest as a shareholder and as an investor. And so, yeah, there is nothing that other than the fact that the title isn’t there, Mr. Danielsson involvement with the company has continued and will continue until we can get this issue resolved.
Bertil Tiusanen - Chief Financial Officer
Okay. Let me ask another couple from the web because we have a few, not a lot of time. This is for Dr. Ostrowski. Question is how the RAS systems that the company uses produced so many fish or prawns in so little space? And how can we enhance the business value proposition of the company through sustainable products or other technologies in R&D?
Anthony Soh - Independent Director
Okay. Those are two big questions. This is Tony, can you hear me?
Bertil Tiusanen - Chief Financial Officer
Yes.
Anthony Soh - Independent Director
Okay. Okay. In the first question about these lots of production in the small space, let me start by saying that our A Power Recirculation Aquaculture System or APRAS as we call it is an 11 generation recirculation technology. And what that means is we acquired the technology about 11 years ago and made improvements upon the systems and operations over that time. So it’s essentially evolved from kind of the licensed process technology to our own IP, of knowhow that we have exclusive knowledge about.
Now to answer the question on production first, let’s -- you need to look at the advantage of RAS in general. Most obvious that into our RAS, allows you year around production because we can control the environment indoors on a year around basis. Now prawn production is seasonal, prawn or dam production is seasonal, limited in the case of warm water species production in Asia to about only two harvest cycles per year, typically between the months of April and December.
Within to our RAS, you get at least double the cycles or more depending upon your production strategy. Now our production strategy is what I like to call a phase cycle or partial harvest strategy. Our animals go through up to four different stages of phases during production in which they have moved sequentially into separate grow-out tanks along the way.
For instance, the animals that we would stock into a Stage 1 tank are growing for four weeks then move to separate Stage 2 tank, that Stage 1 tank is now empty and then restock with another batch of animals. Then Stage 2 animals move into Stage 3 tanks, Stage 1 to Stage 2 and then another batch of animals are restock with the open Stage 1 tank. So this cycle kind of care phasing continues with other batches to four grow-out stages of phases. So, you can easily calculate that more animals can come out of the single tank by this phasing strategy.
In addition, as our animals are growing that certain phases along the way a portion of the batch is harvested and sold. This is done to reduce the density or actually the biomass of animals. So it’s not the overstock biomass into the next phase or next tank when those animals are moved. It also allows you to overstock animals in a previous phase, because you will be calling out prior to stocking in the next phase.
So this is therefore kind of provides salable product even before the entire batch reaches its final harvest size. This kind of phase partial harvest approach is as opposed to all-in all-out strategy Prawn Culture.
Again, Prawn Culture gives you only about two, maybe three harvest a year, limited by the season, but also by the fact that’s very difficult to do a strategize partial harvest in larger prawns. They use nets and it causes too much stress on the animals.
In total, our phase partial harvest strategy gives us of an average of about 14 cycles per year with product being yielded along each phase. So the calculations I have done is that our phase partial harvest strategy gives us yields in terms of metric tons per unit area per year of up to 115 times our traditional prawn culture.
In addition, because we are indoors and that subject to the natural environmental fluctuations in weather and temperature, we have a stable living environment and therefore there is less stress on the animal making them less acceptable to disease.
Further our animals are not exposed to a lot of disease that occurs on the outside, because we are simply able to physically exclude many of the vectors or carriers of the disease from our system, as long as we employee good biosecurity practices. Therefore, our survival rates are significantly higher than in outdoor prawn culture.
So, in summary or in short, the higher yields that we’re able to achieve are because production in the RAS prawn or RAS system is year around, more reliable and more consistent than prawn culture in our [APRAST] [ph] system in particular and phase partial harvest strategy in particular gives significantly higher yields with greater survival and better growth than prawn culture.
To address your second question, on the business value proposition on sustainable production, let me start by saying that the word sustainable in the context of our farming business means that our products are produced in a way that is biologically, environmentally, socially and economically responsible. It means that biologically we provide the best husbandry practices in a biosecure environment and use initially healthy animals, which reduces the risk of them contracting disease in our systems.
It means environmentally that we minimize the use of resources such as water, electricity feed and recycle what we can. It means that socially that we ensure the safety and good working conditions of our staff. And certainly, last but not least, it means economically that we do all this in a most efficient way to provide a good profit margin. We’re not doing this just to be ecologically or environmentally friendly, we do it because it makes economic strengths.
Now many companies can and do claim that they’re sustainable producers. However, a lot of times these are just claims. Claims are not verified independently. Take for instance in the U.S., there were claims of organic food production during the early 1970s as you recall and this eventually led to the establishment of organic standards by the USDA 1990 and eventually, the national organic programs that provides an official certification sales that was around 2000. This was all largely done to avoid fraud that had reproductions at the industry on the whole at the time.
Our value proposition really to have third-party verification or certification of our processes. It doesn’t mean we’re verifying the products are organic or whatever, which is really or loosely use term a wide, but that we verify the process by which we produce the animals are sustainable or sustainably done, as I just defined.
Certification also includes the ability to trace our products to the entire production and value change. This is really central to our farm to play concept of the company. It doesn’t mean that we’re involved in businesses from the farm to the restaurant, but that consumers can trace the history and process of our products from the farm to the restaurants. This ensures that our wholesaler/retailer consumer patriot is actually buying a sustainable SIAF product.
Then what does that sustainability means to the bottomline, while in general additional margin that one gets for a third-party verified product is marginal if it at all. In fact, in vegetable or domestic animal meat production margins for organic products are not that much greater as well, since production cost tend to be higher.
So we would not expect our margins to rocket once we get certified. But in fact research on this subject in the seafood industry which is agricultures included indicates that certification ensures existing markets and actually grows new markets, and there is a rapidly growing list of companies worldwide that are becoming certified in response to consumer demands for sustainability.
If it don’t become certified, it will become harder to compete and you’ll have a very difficult time to try to export because more and more countries are now requiring certification of all seafood production while catch included. So certification will become more important for us as a mega farm grows in capacity to the point that we might consider export markets.
We will certainly need to consider certification domestically because of the rising middle class in China, which is demanding safer more wholesome and more sustainable agriculture products and because the Chinese Government has included essentially sustainability that’s part of their modern agriculture systems development in their 12th five-year plan. So this is going to be extremely important going forward in China.
Now our SAIF, our company excels and therefore it’s a value proposition or sustainability claim is that we are doing all of this indoors and by far what will be the world’s largest RAS facility. We can claim many first and because of model -- and become model to China anywhere in the world less than 0.5% of all world agriculture production is being done in RAS system.
So that will open up many possibilities not only for sale but partnership, venture, licensing, franchising even as we exploit ways to protect RFP. So we have a long way to go with many opportunities ahead.
The first step is to begin to verify the sustainability of our production process based on defined international standards. To me that’s far more meaningful in reaching in terms of market penetration then seeking any kind of organic labeling which will varies from country to country and in fact for seafood it’s still not be find in the U.S. and we are U.S. incorporated company. So I hope that explains value proposition. Thank you.
Solomon Lee - Chairman and CEO
Yeah. Thank you, Anthony. Let’s turn it back to the phone calls.
Operator
Thank you. So the next question or the phone call from [Ronald Tishkin] [ph] from RHI investors. Please go ahead. Your line is now open.
Hi, guys. Hey. Thank you very much for the presentation today and [indiscernible]. Question on margins on yields, I understand that we sold yields earlier and so they didn’t quite have value for [indiscernible]. But now for obviously the price up considerably in that area, I was wondering, that’s the question one? The question two would be on the open dam [APRAST] [ph] system. What you would project adding some results from the experiment in the company, even sell at market price? Thank you very much.
Solomon Lee - Chairman and CEO
So, Anthony, do you want to handle that on the calls, right now.
Dr. Anthony Ostrowski - Chief Scientific Officer
Yeah. But I didn’t quite hear the full question. I heard about the first one. But anyway, the margin on the yield for the region through quarter is going down is because the short supply of the yields baby sintering of all the quarter revenues. Because of that we already got some system already got new. So we have to go more. I think use instead and with bigger yields to go into our time cycle, of course, the course of the bigger yield is much higher and that reduce our corporate margin on the yield for this few quarter.
Thank you. And so that addresses both the cost and the sales quite different from a year ago. The second question we had to do with day press system and the open dam. I think we finish that in fish farm too. Anyhow that’s going to be kind of new experiment for the first quarter when do you anticipate being able to see results on that?
Dr. Anthony Ostrowski - Chief Scientific Officer
That one will come back to the production ratio. We just put in the roof on. We test last week in all engineering and all the mechanical side and all the water last week. So as soon as the roof is on, we can start production. And again, that production is mainly concentrated on Mexican white, so the end time cycle for that is not really long between 9 to 10 weeks. We will start soon the sales of those operations.
Very good. Thank you very much. And again I’d like to also applaud you guys on deciding the spin off the agriculture -- our aquaculture division. I think that is good for the shareholders and thank you very much for that.
Operator
Thank you. Our next question comes from Andrew Wang. He is a Private Investor. Please go ahead. Your line is now open. Mr. Andrew Wang your line is now open if you wish to ask your question. No response from Mr. Wang. We’ll move over to [Brad Moore] [ph]. Please go ahead. Your line is now open. [Brad Moore from Ebak] [ph]. Your line is now open. If you have any question please go ahead. There has been no response from Brad Moore. We will move forward with Robert [indiscernible]. Your line is now open.
Hi. Thank you. I have question and that was -- see here -- one second. One second -- yes. Yes, on the transitioning of the SJAP and the herds. I wonder what impact that has on the capital needs going forward, I’m thinking about both working capital and any possible extra capital that you will need going forward. How will this look over the next 12 months? That will be a question to Solomon.
Solomon Lee - Chairman and CEO
I think eventual answer to show that CapEx and the working capital eventual CapEx and working capital needs so far SJAP especially the program we have met for the SJAP for the coming two or three years. Now I think the answer would be based on the timing of the spin-off of SJAP.
If that is successful within our planned timeframe, I think we should not have any problem with SJAP’s expansion program, which we have not said publicly before. But I think it’s always in my mind because the cattle industry situation in China. We will always -- how should we say -- we will always under imported pressure.
And we have been a young country with the cattle growing and again most of our cattle are being grown majority in the northern part either east-north, west-north or northern part of China, which always have a long winter. That means when we produce good cattle life, we really need a lot of additional stock fees and that increase the cost of the growing cattle in China.
So, I think we will subject to pressure on competition from a way. So, it is always in my mind. Okay. We can capitalize on that by importing more cattle and involving in that activity. A number two is to increase the quality of our own cattle. But our ultimate aim is because I think the delivery at the sectors were important because the live cattle seems we cannot complete freely from the other external imports.
And at the same time that means we want to export our cattle it will be very difficult. But however, under the condition in China, we do more value added that will be absolutely beneficial for the higher margin of SJAP we get in the future. So, therefore, there are two summary here.
Number one, we try the hardest to have SJAP spin-off in the China listing as soon as possible. So we can complete our expansion program. So we can get into the value added sector to generate much, much higher profit margin. And with this value added sector, we can export and pretty assure on the condition the value added products on China would be exportable and we’ll generate much better profit margin than just operation on beef.
Okay. Understand. I can understand what your aim is. But looking at specific transition from your current period to the higher quality beef, will that require an additional working capital to complete that transition or would that require to run additional CapEx of substantial amount going forward?
Solomon Lee - Chairman and CEO
Yeah. On the CapEx side is amenable but working capital definitely.
Q –
Okay. I understand. You mean the working capital for the import for the two transitions. What are we talking about, Lee? Do you have any numbers or?
Solomon Lee - Chairman and CEO
Yeah. We have expect instead of doing a herd of 20,000 as we doing now. We mostly reduce the heard to about 12,000 within the next two or three years. So the working capital by increasing that and to sustain that over that period is quite sizeable.
Q –
All right. Okay. So, you don’t have any numbers that you want to make public on what kind of working capital -- additional working capital you need to make the transition?
Solomon Lee - Chairman and CEO
Not really because there is a quite a number of variables in between.
Okay.
Solomon Lee - Chairman and CEO
We are planning. We are working on the program to reduce that when that happens and that program also subject to number of variables.
All right. Okay. Thank you.
Operator
Thank you. That was the final question. So I’ll hand the conference back to you speakers.
Solomon Lee - Chairman and CEO
We thank you for our shareholder and we’re looking forward to report more [Technical Difficulty] Please [indiscernible] and call and [Technical Difficulty]. Thank you, Sebastian.
Operator
Thank you. This now concludes our conference call. You may now disconnect your lines.
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