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Carog   Tuesday, 09/08/15 06:50:01 AM
Re: emptyone post# 94666
Post # of 154526 
Hi Everyone!

I´ve just landed back in Sweden after being on the SIAF investor tour to China.

The trip has been very intensive with a very comprehensive program with long days followed by dinners with the SIAF management but also some of the local managers and customers of SIAF and their partners. Most of the participants on the trip will probably come home today or tomorrow.

I dont think anybody really have had any time to even contemplate to comment (here on Ihub) on the trip so far. I can just say that I have a much greater understanding of many sides of the business after this trip.

For you that like the short version: I´m feeling more confident about SIAF and their business model after this trip. More confident with local management, more confident with the great opportunities at hand due to: the fantastic market size, the business set up, lack of real competition, great local network with different important officials in the areas/regions where SIAF are doing business.

One says that a picture tells you more than a thousand words....

We have been spending days of time just looking, absorbing, asking questions about all the areas of the SIAF business. The company has been represented on the trip by Solomon, Bertil, George, Nisse, Anthony, Tony Ostrowski, Erik Ahl and a number of other employes and partners. And I have talked a lot with all of them. It has made me realize a lot of things, but the conclusion is very positive when it comes to the sustainable growth opportunities that we have going forward and its very clear that SIAF with its business model, goals and values are perfectly positioned to capitalize on both the market opportunities at hand and the different trends going on in China.

Me and a fellow shareholders have also made some interviews with suppliers, management, bod members and co-workers, some recorded and some not, we have been filming everything, both with a drone and with a regular videocamera. It is our intention to try to structure all the material we have and make it public to all of you that didn´t have the opportunity to come on the trip. I´m very confident that the material we have will help you to make better investment decisions going forward. We have so many hours of raw material so it will take some time to get it in decent shape to publish, it will be pretty raw material, since we are not proffesionals at filming.... and we only had two days in Thailand to practise flying the drone before we left for China...;)

A few conclusions that I can develop going forward:

1. Solomon has great relations with both his staff and all of his partners and it is clear that they appreciate him and have a great deal of respect for him. It is clear who is the boss. Its also clear that Solomon knows his operations very well.

However the business set up (partner- and relationstructures) in China with businesses run by partners that you dont own (yet) on land that you dont own (land use rights) represents great challenges when it comes explaining the fundamentals of the business in a reliable way to create opportunities to finance in a normal way. I feel that I have a greater respect for the difficulty for westerners to understand the ways of China in there regulated capitalism. With the complexity of the business its clear its hard to impossible to get fundmanagers and financial institutions to invest the amount of time it takes to get a proper understanding of the business as it is structured now. Spin offs and divesting in combination with corporate governance measures seems to be the right way to get the different business segments more transparent and more easy to understand and therefor calculate credit risk on. But at the same time its clear to me that we need Solomon to be in lead of the operations at this point. He obviously has a great understanding and the partners and officials seem to like him a lot and that also goes for his own staff.

2. We made interviews with Dr. Anthony C. Ostrowski, and there is know doubt in my mind that he will be a super asset to the company going forward by helping the company increase density in the current tanks and thereby increasing production (it takes some time though, nothing to expect right away) in existing facilities, I´m sure he will be able to develop our inhouse "breeding" of fingerlings and developing of our own patogen free motherstock (equals to intellectual property when it comes to fingerlings, according to Dr O) getting us to capitalize tremendously on fingerlings production going forward, you will also realize this after we publish some interviews with him. This is also something that takes quite a bit of time, we are talking a couple of years before we are where we want to be. But improvements should be able to start quite fast. This isn´t research and development in the normal way since we just want Dr Ostrowski to use his level of competence to develop this side of the business. It takes in between 7 and 21 days before you can sell the fingerlings so due to the short cycles, this is a very scalable and interesting business, adresssing 150 000 fish farmers with no real alternatives in the area around Guangzhou and Zongshan.
And I can tell you that they are there, we have spent hours on the bus passing an endless number of fishfarms (open dams not RAS) situated close to the roads that we have been travelling. The average Chinese person eats about 32 kg of fish products per year if I remember correctly.

3. After this trip and after I talked to local Chinese traders, importers I´m now convinced that there is no way you can do business without strong local partners in China that is well connected in the area/market you are aiming for = SIAF´s set up seem to be very good. I also think its essential that we have a CEO with great relations to those local partners. This also means that Solomon is not somebody you can easily replace. Its clear to me that he is an great operational asset but at the same time he also constitutes a business risk.

4. Being at local whole sale markets, both when it comes to fish and meat - the conclusion is that food safety is almost non existing, its actually superterrible! However awareness of food safety is growing at great speed in the population of China and so does the demand for products with high standards, like the one SIAF provides.

Food control on imported foods is rigourus, which has lead to a situation where the chinese people increasingly are asking for imported foods since there is hardly any enforcement of the current regulations by the authorities on the domestic market. Knowledge in health and food safety issues is seems low to none amongst the people doing business at the fish- and meatmarkets. This together constitutes a great opportunity for SIAF to capitalize on going for many years to come.

5. SIAF´s meatbusiness is on a totally different level, the whole sale center in Shanghai was very impressive. It will be interesting when they can get the fish going there aswell. I also met and talked to an importer that wanted to buy SIAF´s grown beef since he couldn´t get beef with that quality when it came to how marbled it was. He was not yet a customer but he was very impressed with SIAF´s quality of beef and the operation at the whole sale center. He was at the time importing 30-40 containers per month. We had a long and interesting chat. At the time we were there, they had also invited a lot of customers and showed the facilities to them aswell and gave a very thorough presentation in Chinese translated to english.

6. There is no doubt in my mind that the import business focused on different qualities has got superpotential and its happening now. There is a lot of players out there that is fighting to take a share of the giant market - we need working capital and a lot of it, we have a golden opportunity in a rapidly growing import business both when it comes to beef that we debone, but also when it comes to importing precut meat or quarters for reselling... This business has many angles to explore and we should move ahead at full speed with that segment. Different companies is trying to position themselves right now. At this stage, it seems to be about volume and not margins. SIAF´s margins is surprisingly high right now.

Other importers that I´ve talked to at the whole sale center in Shanghai focused on volume and market share right now. Margins would be something that they aimed to adress after they have secured the customers... Apparently there is a saying in China: Negotiations starts after the contract is signed.....

7. I believe the big fishbusiness going forward for SIAF will be live fish. That is where we will make the big money. I base this on the look of the existing fish markets, food safety issues, the overall increased demand for fresh fish, its where to be since there is little competion and at the same time premium prices. This is also the view of Dr Ostrowski. There is a lot of low quality fish out there, but very little fresh fish that has been brought up in accordance with SIAF´s ecological standards. There is no need what so ever to try to compete on the international market with frozen fish. Low margins and great competion! The Chinese market is more than enough to adress!!

8. The market is there as long as you have the right product, the right timing and you are in the right place when it comes to China, it doesn´t really matter what you are selling the potential market is incredible.

9. In the Guangzhou district alone there is 150 000 prawn farmers that all have to buy most of there fingerlings from CP now, (the only supplier of fingerlings that are free from certain disease patogens) I believe this will be our next superbusiness with Dr Ostrowskis help. And by the way he is also a very friendly and nice person that fortunately has a talent to easily explain the business in great presentations. His presentation at Prawn farm one was by far the best I ever seen in SIAF´s history and I´m sure that all participants would agree with me on that.

I have of course shared my conclusions and thoughts on the business with management and some of the BOD members.

A few reflections so far....

Now I have to rest a little bit. Very tired at the moment!


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