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Here's a transcript of the call, knock yourself out

Sino Agro Food, Inc. (OTCQX:SIAF) Q1 2016 Results Earnings Conference Call June 3, 2016 10:00 AM ET

Executives

Solomon Lee - Chairman and Chief Executive Officer

Daniel Ritchey - Acting Chief Financial Officer

Anthony Ostrowski - Chief Scientific Officer

Nils-Erik Sandberg - Director

Bertil Tiusanen - Senior Vice President of Business Development, New Ventures, Europe

Analysts

Operator

Welcome to Sino Agro Food's 2016 First Quarter Financial Results Conference Call. During this call, CEO, Solomon Lee, and Acting CFO, Dan Ritchey will provide an overview of results from operations and highlights for the quarter ended March 31, 2016. Then we will open the lines for question-and-answer session.

All forward-looking disclaimers included in the company's 2015 annual financial and operating results press release, dated May 16, 2016, 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 2015 10-K filing available via the U.S. Securities and Exchange Commission's EDGAR system.

In addition to Mr. Solomon Lee and Mr. Daniel Ritchey, on the call are Dr. Anthony Ostrowski, the Chief Scientific Officer and members of the Board of Directors; Mr. George Yap and Mr. Nils-Erik Sandberg as well as Mr. Bertil Tiusanen, Senior Vice President of Business Development, New Ventures, Europe.

Questions will come from the phone lines and from those submitted from the web facility. We have an hour for the call, so in the interest of fairness, please ask only one or two questions any time selected from the queue.

I would now like to introduce Mr. Solomon Lee. Solomon, please go ahead.

Solomon Lee

Thank you, moderator and thanks to everyone for attending today's conference call. On today's call, our Acting CFO, Mr. Daniel Ritchey will make introductory comments on the quarter before handing it back to me, then to questions. Dan, go ahead.

Daniel Ritchey

Thank you, Solomon. Let me make some summary comments on the financials which are well represented in the accompanying slides and then make a couple closing remarks and then I’ll hand it back to you.

Slide 4 if you would please. Turning to the Group’s financial results, first quarter 2016 revenue totaled $71.9 million with the gross profit of $18.9 million and fully diluted earnings per share were at $0.39. For revenue gross profit and earnings per share results represented decreases of 27%, 12% and 39% from the previous quarter respectively.

As reflected in the Q1 report, the company will continued to provide year-over-year comparisons, yet as the company continues to right the ship that resulted from the precipitous drops in beef prices and other problem areas, we feel it essential to provide a quarter-over-quarter comparative to reflect improvements or increased challenges having taken place within the last 90 days.

On to Slide 5 please. Looking at the trend in revenue and gross profits in Q3, 2015 declines in the sale of goods was entirely explained by lower sales prices primarily in beef and a product mix with a lower proportion of higher profit margin products. Due to margin restoration during Q1 within aquaculture and SJAP Q1 sales of goods gross profit grew by 14% compared to Q4 of 2015.

Slide 6 please. During the first quarter the company achieved record volumes across its main product lines, aquaculture, value-added beef processing and beef imports. Let’s go to aquaculture first. Comparing Q1, 2016 to Q1, 2015 seafood sales volumes increased by 37% to 1,891 metric tons. However, revenue declined by 40% to $16.5 million due to a higher share of lower value fish sold with lower average sales prices.

The change in sales mix was primarily due to the short supply of eel and elvers from last season. The introduction of mixed fish species contributed an increase in gross profit of $1.1 million. Beef operations in that area, revenue decreased 27% to $26.3 million, explained by the company’s proactive decision to curtail sales of live cattle to 851 heads in Q1 of 2016 versus 532 heads in Q1 of 2015 due to the lower beef prices during the quarter.

Relaxed trade restrictions on these imports to China from 11 exporting countries has resulted in prices for live weight domestic beef cattle falling substantially. Compared to Chinese beef rearing peer companies the integrated cattle segment fared favorably owing to value-added production and the herd transition.

We continue to grow value-added beef production to 2,177 metric tons in the first quarter of 2016 resulting in year-over-year revenue growth in value-added processing of 45% to $17.7 million. On the import, export and trading side, total trading import volume grew 33% to 1,050 metric tons in the first quarter of 2016 from 790 metric tons in Q1, 2015.

As a result of record high beef import volume of 970 metric tons, however revenue from import, export decreased by 34% to $6.4 million due to lesser imports of seafood from Madagascar not yet fully compensated by the growth in beef imports.

Slide 7 please. Looking at the margin development during the quarter, all sales of goods segments exhibited relatively similar margins in Q1 2016 compared to Q1 2015 with group sales of goods margins deviating only 0.1% compared to Q1 of 2015.

Project development margin, mainly consisting of Aquaculture project development decreased from 41% in Q1 2015 to 25% in Q1 2016 mainly due to the fact that Zhongshan's Prawn Farm 3 derives lower margins at earlier aquaculture products due to larger scale. Compared to the first quarter of 2015, gross profit for the first quarter decreased by 47% to $18.9 million; however, compared to the fourth quarter of 2015, the decline was less than 12%.

Slide 8 please. Looking at the income statement, G&A expenses remained flat year-over-year at $4.6 million equal to 6.4% of sales. Of the $1.2 million in interest expense recorded during the quarter, the major part is non-cash [indiscernible] amortization of the Euro-China capital convertible bond.

Slide 9 please. Looking at the balance sheet, current assets remained almost flat at $320 million versus $322 million at the end of 2015 with higher deposits in prepaid expenses offsetting lower accounts receivables.

Fixed assets grew by $18 million due to an increase in the construction progress line item mainly at SJAP and HSA. Stockholders' equity increased by $8.5 million to $492 million or $20.90 per share based on the quarter's weighted average number of fully diluted outstanding shares.

Slide 10 please. Moving over to the quarter’s cash flow, Q1 cash conversion remained high at 89% with $15 million of cash flow generated from operations as a result. CapEx during the quarter was allocated to HSA and SJAP for completion of the cold storage and HSA’s cattle facilities. Anticipated major 2016 projects include building a canning factory and a potential add on M&A with a target company located in Qinghai both to further expand value added processing capabilities at SJAP.

At Prawn Farm 3, fully constructing the third building which encloses 48 standard units of APM filters is expected to raise the design production capacity from 6,000 metrics tons a year to 10,000 to begin scaling after all testing and stage 1 phasing proceeds successfully. As I mentioned on our last call for the annual report, we are now positioned to restructure several sets of subsidiaries each with sufficient critical business standing and standing in size as standalone companies. The parent assists each subsidiary to find its most appropriate venue and value and as with every expectation that each as a quarter, the multiple to individual net assets not a fraction.

Subsequently, we’re continuing during the quarter on a long list of tasks for carving out subsidiary entities, primarily the integrated cattle operations and the aquaculture operations. Work progressed on schedule such that the company anticipates being in a position to update shareholders with meaningful announcements within the coming weeks.

Again, as mentioned on the last call, we are encouraged by efforts to date for both SJAP and the aquaculture assets. And if all requisites are timely met, a separation of these assets and individual standalone entities is projected to occur within 2016. We do look forward to reporting milestone achievements in these endeavors as they occur and/or are awarded.

I will now pass the call over to our CEO, Solomon Lee, but will be available afterward to answer additional questions. Solomon?

Solomon Lee

Thank you, Dan. Let’s start with Slide 12 please. I have depicted in our regional goals and upon the history of the company to put our current position to perspective. So many anticipated circumstances throughout the years, we still stand just about where we are recent from the start.

That is well positioned to capitalized on all the hard work and investment. Today we have created several commercial viable operations, each with large scope potentials, well situated between attractive market niches in China and together totaling over $650 million intangible assets and reaching sales of $429 million 2015.

These are solid fundamental businesses with firm financial performance, positioned to take the company and its subsidiaries to the next higher levels. This was accomplished despite many unforeseen circumstances. Of late, in 2015 the sheep and beef [indiscernible] in China suffered its worst losses in 30 years. And so far in 2016 Guangdong province has experienced the coldest and wettest winter in 100 years.

The results in Q1 was somewhat below optimal, but very much in line with any expectation given some unusual favorable conditions and also on track towards the larger value added strategies foremost of which assuming a sum of the parts variation for carve-outs.

Slide 13 please. Given the exceptional challenges, earnings of $0.39 per share was better than expected under these circumstances. We expect its challenge external factors to improve over the remainder of 2016 and are confident of positive improvement across many sectors of our business.

The outlook for the remainder of 2016 benefit not only from possible improved product mixes and pricing, but also because newly constructed facilities becoming productivity. New sourcing avenues become available and some recent positive developments already put into actions. Project development, our project timeline is robust for several years. The third building at Prawn Farm 3 is active this year. Completion will [indiscernible] work for Prawn Farm 4 development staged over the next 3.5 years. With each of the six moderates [ph] the size of Prawn Farm 4 averaging seven months.

At Prawn Farm two, the second phase of development of which two hectors [indiscernible] for prawn grow out is underway. And [indiscernible] has been appointed as the turnkey contractor to construct the development and [indiscernible] in Madagascar and then to manage its operations.

Sales of goods, the considerable infrastructure in Prawn Farm 3 will be available and progressively used to generally what we expect to be very attractive returns once we deliberately and thoroughly complete it and [indiscernible] equipment and necessary processes.

At SJAP, the transition to premium live cattle and 550 days grain feed Angus cattle we source our deliberate process that will add dramatically high profit margin products incrementally to the mix of live cattle sales over time. In the meantime, we believe that prices for domestic live cattle has bottomed and may reach a level justifying the increasing sales.

And we have continued to expand deboning, packaging and co-storage facility to increase value added sales now and to allow processing of more import beef into higher margin downstream products, the fresh chilled and pre-packed frozen meats. We are growing the beef side of the traditional business of the frozen business, increasingly utilizing existing capacities.

More recently, we have procured new suppliers in U.S. and Canada for lobster and snow crabs for instance, Pakistan for limited quantity of light topical crayfish, and a new joint venture at HunChun City in Northeast China importing crabs, marine ponds and shellfish from Russia to be processed, frozen, packed and shipped to the shanghai distribution center for further distribution to regional seafood houses.

Slide 14 please. Almost from its inception, Sino Agro Food was averaged [ph] to grow by approximately an order of magnitude every five years at least for two iterations. This meant growing the moderate company to sufficient size and maturity first and then creating the infrastructure and potential for the six months to achieve the same ambitions. That is already bringing innovation concepts and technology to Aquaculture makes this kind of growth feasible and doing so in China makes it viable as well as encourage.

This year we have maintained focus on creating complete difference [ph], advantage standalone protein food business entities that have demonstrated full cycle productions and sales. And rather we exhibit grow potential based on newer complementary facility and productions. These facilities also create size, vertical inspirations and competitive advantages within our subsidiaries adding to the evident growth part that makes them more suitable for carve-out at more attractive variations.

Steps continue to be taken to cut out this entity for separate listing in an effort to allied operation and assets leading to proper market variations. We are pleased with the receptions to date. We are increasingly confident that capital strategy is most appropriate towards achieving the ultimate aim of win-win economics for our shareholders and all Sino constitutions.

As with most business endeavors, the main variables are effort, money, and time. The company has been working on the carve-out exercise with a number of highly qualified and experienced consultant firms, public and financial bankers, security houses, lawyers, accounting firms, public listed company owners and their related teams, all with the best concentrate and efficient effort dedicated to complete them as soon as possible.

In this respect, the company is looking into the best way and means to relate milestone progress on these initiatives to our shareholders without infringing upon any stock exchange regulatory rules of both USA and other possible listing destinations. We are getting close now to determine holding company [indiscernible] to shareholders.

In the software market the company’s carve-out ambitions are expected to [indiscernible] which in turn improved cost for more attractive long term financially. In this respect the company is hearing a conventional loan offer from a recognized financial institution. The interest rate of which and terms of where [indiscernible] when compared to overall market run rates and terms on an average.

Again, this is conventional loss which does not involve warrants or equity insurance. At the same time, the company achieves verbal understanding for other reportable things to undertake long term financing needs of the company. So I am again increasingly confident we will bring this strategy to success or fruition and looking forward to report material progress in the coming weeks.

Moderator, let's open the calls for questions now.

Question-and-Answer Session

Operator

In addition to Mr. Lee and Mr. Ritchey, Dr. Anthony Ostrowski, Mr. George Yap; and Mr. Nils-Erik Sandberg and Mr. Mr. Bertil Tiusanen on the call. We will now take questions from the phone callers and from the web. [Operator Instructions] Our first question comes from John Harold from Harold & Associates. Please go ahead. Your line is open.

Unidentified Analyst

Yes, good morning. First and Solomon, ever since you’ve been a publicly traded company, you have been raising capital just year, after year, after year, after year. It seems to me that you would want to just take a rest, grow the business organically, improve the people, especially foreigners that your business is halfway legitimate.

I don’t think shareholders and I think the stock price backing it up, want to keep shelling up millions and millions and millions of dollars to try to hope that you grow an empire and someday pay a dividend and actually shareholders can see returns. So what are your CapEx returns going forward, CapEx plans and expenditures going forward? What kind of money, when does this all end, the rising of capital and shareholders can actually look forward to some kind of growth without dilution again and again and again?

Solomon Lee

Whereas in the opening speech that we now cornering a few conventional loans in the support of some reputable bankers I think all that will be solved and besides that we are now in China only seven years and we don’t spend CapEx. We never get any business done here anyway and we've never been able to capitalize on the opportunity that is over in China. So the whole position and the solution would definitely be, like you say getting some cheap activity that doesn’t involve equity. That is exactly what we’re doing now.

Unidentified Analyst

Then why are the Board of Directors being compensated in the manner that they are, they are not creating any shareholder value?

Solomon Lee

Well I don’t think it is compensation the things we [indiscernible]. A lot of directors never get paid for seven years for what they deserve to get. We just catch up a little bit. At the same time, most of the directors are given everything back to the company. Never in the history of this company, the director don’t give things back to the company.

Unidentified Analyst

I just don’t see the value...

Solomon Lee

In fact it is more than what they get from the company back to the company.

Operator

Our next question comes from Ingmar Scarlett from Scarlett Invest [ph]. Please go ahead. Your line is open.

Unidentified Analyst

Thank you. I have a question for Tony please. Regarding Prawn Farm 3 and the stockings that has been done on the post lobbies ph and it does not continue, it was two batches of $1.2 million, but in February and March, but no information about something else that it has continued and can you elaborate on that, are there some problems and how do you plan to solve them?

Anthony Ostrowski

Okay. I have to remember that the initial and subsequent stockings that we did in the MegaFarm in February we’re always, what we term it as a kind of trial and shake down runs to test out the new systems and really trained some new staff. So we thought it was real prudent to do these and to determine if we had any remedial construction or trading needed to occur before all the tanks were completed and commercial production had started.

So we didn’t look at anything in particular, particular variables that we were testing, but just to put animals in the tanks and see how they were doing, see if there were any problems before going forward with finishing the construction. So at the time, our boilers were not even in place at the time of stocking that is where we had low temperatures, so we had slower growth than normal.

So the time to reach harvest size of these initial batches is going to be longer than the normal 14 weeks of a run. But when we – we will complete these trials and use those and when the animals reach our final target harvest size, we use that data sort of low benchmark outlier of our system. And hopefully we will begin, I just got back from the New York meeting, I haven’t actually visited the farm yet and I plan to do that tomorrow, but we will plan to begin commercial stocking as soon as our settling ponds, ocean ponds and all the APM tanks are complete and that should be by quarter 4 of this year.

So, again we work out the bugs of the systems which are major bugs at all in the systems and again training the staff and that’s what we, that’s why we did those runs and not really considered start up of our commercial runs, not until we complete everything.

Unidentified Analyst

Did I catch you correctly that first in the fourth quarter then we I think can expect normal production so to say, did I catch you correct or wrong, did I misunderstand you?

Anthony Ostrowski

I’m sorry, you broke up on that, can you repeat the question?

Unidentified Analyst

Yes, did I misunderstand you, did you say that it will be in the fourth quarter this year that we will start to normal production, so we - not until then or did I misunderstand that?

Anthony Ostrowski

Right, yes something like that in the fourth quarter of this year is what we targeted.

Unidentified Analyst

That seems to be something, how come it continues to be the heating system that’s the problem because summer wise it should be warm enough. There must be some other problems if you are not planning to start operations fully until the fourth quarter?

Anthony Ostrowski

Well, to be able to start commercial operations what we really need to is our settling ponds to be done to be handle the quantities of water that will be, that will be draining out of the system at full production level, even though it’s a re-circulating system, we’re going to be draining water out because of harvest and filling up water and taking water out of the tanks.

So, we need those settling ponds to be done and as I spoke to Solomon today, we’ve made progress on those settling ponds out there. And then all the APM tanks have to be completed as well. The tanks are up, but not all of the plumbing and all of the pumping systems are in place to each individual tank right now.

Unidentified Analyst

Okay and [indiscernible] something that you indicated before because I think that’s a bit of negative news that could have been communicated before, so we knew that production should start first by the fourth quarter.

Okay, I have another question for Solomon regarding the use of capital. There was some investments made mainly to SJAP and HSA during the first quarter. How come you invest money here when the Prawn Farm 3 needs to be completed and that should be your first priority?

Solomon Lee

Hello, I…

Unidentified Analyst

Should I repeat the question Solomon?

Solomon Lee

Yes, repeat the question please.

Unidentified Analyst

Yes. It was CapEx and there was some investment in SJAP and HSA this first quarter. How come you continue to invest there when we need to finish the Prawn Farm 3 as soon as possible?

Solomon Lee

Oh, actually that question I allocated to Dan already. Dan, might be you can answer that question.

Daniel Ritchey

Your question, that was the allocation of capital, why do you invest in SJAP and HSA when the Prawn Farm 3 should get all the available cash?

Solomon Lee

Well, that’s not true because the Prawn Farm 3 if you want me to answer the question I will tell you now, Prawn Farm 3 is a project having way behind the plan of the HAS as well as SJAP. Now after HSAs completion of the cattle farm also is really delayed last year and this year because we have cut that food and we have to do a lot of and mental impact and construction.

So Prawn Farm 3 also they are like Tony said, the observation team and the 30,000 frame mirror which we’ve incepted [ph] to a lot of weather factors. And so the farm has been allocated or [indiscernible] last quarter we understand and that is money [indiscernible] to complete all those [indiscernible]. That would not do enough to the project in Prawn Farm 3 to complete that anyway. So that is question one answer.

For SJAP, that’s another different matter because there are circumstantial change in the beef industry and for us to patch up and we have to put priority with SJAP otherwise we will do a carve-out exercise this year of SJAP. And we will lose a lot more money if we do not do the carve-out exercise under SJAP this year. So I think that answers your questions.

Unidentified Analyst

Okay. Regarding this spin off that we have been talking about, you’ve said that within the couple of weeks we’ll be able to come with more information. Can you reveal what business area it relates to, is it the aqua spin off or is the cattle business or is it the plantation?

Solomon Lee

No we are planning to couple to be with more priority than the others. The number one is the Agro [ph] and all the SJAP. These two are coming very close. As I said in the opening speech, we've any, that one of this is done in quarter 4, subsequent quarter with another. But of course having said that we are trying our best now to have one completed this year as soon as possible and I think it very likely will happen.

And to answer the other question is because we really don’t want to be getting into trouble with lot of forward looking regulation. But I think what I meant is, within the next one or two weeks we would have a way of giving our progress to our shareholder clearly with evolution and the progress is being told to our shareholder progressively and effectively, that’s what I meant for the two weeks coming. I think that will come very shortly. So, you would get an update information very clearly, progressively.

Unidentified Analyst

Okay, thank you. This new loan that you mentioned, can you say the size of the loan?

Solomon Lee

Yes, but I can’t say that now just in case because its fair, but a lot of banking regulation and this kind of inferences, I’m not really allowed to state it except among whoever, but I can tell you this, it is wherever, but I can tell you this, it is in front of my source to get all this clear, then we’ll be able to make that announcement accordingly.

Daniel Ritchey

And Solomon, I think it would be safe if you wanted to disclose that this does not require collateral, no equity holdings, no equity issuance, no conversion.

Solomon Lee

Yes. I mentioned that in my opening remark already, Dan. This is absolutely conventional debt financing, very low interest rate. There is no equity involved, no warrants involved, a straightforward debt and the other banks are looking at also similar facility.

So in the last few months, I think we managed to open the role into this kind of financing much better than we tried before and also the good thing is this kind of financing also is short term, but we will promise they [indiscernible]. So again, that takes the headache off the short term financing issue. Hopefully we will materialize that and then long several issues.

Operator

Due to the timeframe we will now move on to the next question. [Indiscernible]

Daniel Ritchey

Yes, Maya can we ask a couple of web questions and then we'll get back to the queue.

Operator

Yes.

Unidentified Analyst

Okay, the first is you mentioned a new abattoir project in Madagascar. Can you tell us a little about that in terms of when it may start and what the expected revenues would be?

Solomon Lee

Well actually on that project, the good thing is actually the company in debt allocated aspects [indiscernible] Contracting is the only company with exclusive export license and exclusive abattoir license I think that is critical. Now, we have not planned a big ambitious plan for that revenue, but we are developing that project similar to the [indiscernible] project in Chile.

At the moment, we are developing about 189 hectares of land. So we can fatten the goat there. Now with that fattening we are under the same program or offering to the local famers. So each one of them might get a small broken land for whatever capacity they have to grow the goat, to fatten the goat supplier abattoir. Now that's the position now, but I am anticipating we complete this job be at least 10,000 to 20,000 head of gold for the first year.

It is a pretty good margin business as far as China is concerned because we can buy the around about RMB 100 for every a 40 kilo and we are selling those things in China at the moment almost 2.5 times of that value.

So that will give a pretty good looking perfect margin as we grow that business. Now having the quarter to ship and I think the whole country with one expert license at the [indiscernible] we will gradually become sizable.

Unidentified Analyst

Okay. As a follow up, are there any possibility is there any possibility of building a fish farm in Africa in the future?

Solomon Lee

You just asked the right question. Tomorrow we have a delegation coming in to look at the feasibility and we just have another Indian group came in, we had been before this meeting also looking at that possibility. But I think it is too early days, but it is the company’s direction we can turn global and if the opportunities is there surely, we will look into it very open minded.

Unidentified Analyst

Okay. One other question, due to a lot of factors, the project developments at the Prawn Farm 3, only had a low number of available days in the first quarter, is the second quarter looking improved?

Solomon Lee

Well, actually the first part of this quarter is not that good either because China have many product locations and our Guangdong province did not get display of it. So we do have – we did also have a prior job program. But the May, the last two which in May looks fine, pretty good. So we're making good progress and open tank. Like Tony said this open tank is critical for us to supply and join the waste water and supply with the good water into the tanks.

And also on the plantation, it’s such a huge plantation, so the tank has to be filled with water gradually to make sure we get a stable foundation. We are not hoping to have any accident if we trying to do it in a hurry. And that is one of the reasons why Tony said we cannot and we might not be able to do a full commercial scale of operation until the quarter four, which is a very good conservative type of engineering aspect of looking at that farm because we are one day as nothing we have never done anything so big before and we already come at this stage and we don’t want to really make any accident. So given that, it doesn’t mean we were not producing even in the third quarter, but we would not be in such a huge state, that is all.

Unidentified Analyst

Okay. Maya, you want to return to the phone queue please.

Operator

Yes, our next question comes from [Andrew Wan] who is a Private Investor. Please go ahead. Your line is open.

Unidentified Analyst

Hi I have a question for Solomon Lee. In the Swedbank Analyst report, it says the company needs to raise up to $100 million. I wonder what is the plan for that because according to my understanding we need to raise some capital to acquire certain percent of the MegaFarms. I don’t know what is the plan yet, please comment on that?

Solomon Lee

Now actually the MegaFarm even Prawn Farm 4 is quite sizable development. This development the company has ever taken in one single project. Now and also curiously to take the Prawn Farm 3 and the farm into the position to what it is now there is a lot of money has been developed in to this project. Now I think that Swedbank’s message was right at that time. Of course now we’re are looking at more favourable cash flow situation with some of these credit lines coming through that we anticipate to be completed soon. Of course we don’t need that if the internal generated revenue.

We are very hopeful we will reduce that amount, but of the capital course. That thing is now we have made it very clearly, with the Prawn Farm 3, our CapEx of course is in the vicinity of 5000 to 6000 per metric ton, but in this Prawn Farm 4 we are intending to reduce it way down between 3000 to 4,000 per metric tons. So between that scale and this new scale of course we would need less development cost. But the actual figure, we will look at it more intensively once when we successfully taking up a few straight debt bank financing.

Unidentified Analyst

I mean for the [indiscernible] in order for us to spin off we need to acquire certain percent of the MegaFarm right? So, I heard from the investor relations it says we intend to acquire 75% of the MegaFarm, but I wonder where the money comes from. We cannot spin out before we acquire 75% of the MegaFarm, I’m I right in assuming that?

Solomon Lee

Now, in mathematics you are right, but in China a lot of people here wants to make further money, so a lot of these acquisitions we are going to do might not need cash.

Unidentified Analyst

But according to already in the contacts we need to acquire the MegaFarm by the end of this year right?

Solomon Lee

No, the MegaFarm we don’t need to acquire by the end of this year has not even built. We have one option to pick up whatever we have completed the build. So far we have not even completed the Prawn Farm 3. But it has…

Unidentified Analyst

I understand that, I understand that. I have another, because I understand – okay I have another question which is directly related to you. I mean if you look at the internet, the internet forum from a Sino Agro Food. There is lot of debates among the investors and one of the main obstacles all the investors, agree on is the Asia, Eurasia.

Most of us think that Eurasia absolutely disaster for the company for shareholders values. I wonder whether you have any comment on that and what is your plan on Eurasia especially considering your total control over the company and also I’m a little bit of concerned about your age?

Solomon Lee

Well, I’m concerning about my age too, but I think I can kill a couple of tigers even now. So, that concern I think at the moment is a media concern. And number two, the Asia, everybody bought shares in this company knowing the company has either shares from day one and we've built a company for the last eight years to bring it up to what it is.

Now of course Asia might not be a good thing if the company wasn’t build. But Asia allow us to build a company until now. So when the spin-off, when you do the spin-off there is a little more Asia in those spin-off companies. So what is the big trouble? We don’t have the carve-off trend and yes because I cannot run this company for the next 100 years. But surely the carve-off business as we re-indicated this should all be independent and they should all be able to stand up on their own. So you have a new lot of company coming up for the next one or two years and that’s surely I can last that next one or two years to make things happen.

Unidentified Analyst

I guess you can clearly see the market thinks differently starting from last year around this time, the share prices peaked at $17.43 and if you look at a few days ago the price bottomed out, I don’t know where this bottomed out, but it is food out of something. So I wonder whether that concerns you or whether that is not considering you at all. I mean as a shareholder for more than five years I'm still 40% in the red. I mean you constantly talk about creating shareholder value and as far as I’m concerned, I don’t see any shareholder value for now, so I guess maybe you can?

Solomon Lee

They are not too very disappointed for you because you lasted five years, you only got the chute but the timing is not that far away. My belief the solution is definitely on the carve-outs. And also to talk about our share prices, nobody can tell. If we can all tell about the share prices we are rich.

And for also in the last quarter, don’t forget China has big four for days same as Europe, same as USA. That must have set some sort of bearings on any share prices. I mean we can’t control it. The share prices to $17.40, the A shares was there, why didn’t anybody complained it, why the shared prices dropped because the whole word collapsed in the last quarter?

Every share price is dropped very badly, then it’s about A shares, let me tell you without A share we would have never built this business. Because everybody wants to have a say in the business and how many people know China as well as we do in our camp ? Our Director has never changed much. Everybody works for the company wholeheartedly. They don’t deserve any merits, I don’t understand.

This company started with a clean sheet of paper. It is now in excessive of $615 million tangible assets. There is no appreciation. How could you have done it? We have a strong management. This is China. We are a growing business, China is a growing country. Does it have any effect on people’s mind? How to build this business in China? How to make it fundamentally sound? Of course, within the next three years, we are looking at all the possibility of increased evaluation of the company and that is what we are doing right now.

Unidentified Analyst

Okay. I do appreciate that you - don’t take me wrong, my last question...

Daniel Ritchey

Excuse me.

Unidentified Analyst

Solomon Lee

Last September, there was an announcement that Frederick, Ms. Frederick.

Daniel Ritchey

We have asked that people try not to dominate the call and ask only one or two questions. You are welcome to get back in the queue.

Operator

Due to the timeframe, we will now move onto the next question. [Operator Instructions] Our next question comes from Paul [indiscernible] from Rock Hill Investors. Please go ahead. Your line is open.

Unidentified Analyst

Yes, thank you. I guess my question is directed towards Dan and it’s much along the same lines. Our families have also been decimated with all the stock price and understand where the business is being built and things happen. But when you talk about riding the ship, and you talk of a plan maybe that would give us some hope in cash or stock or whatever you have plans for the existing shareholders, who have been given shares. We had to pay good money to get a piece of this company in the SJAP and MegaFarm plans spin-offs, maybe it is too soon to talk in detail, but can you give us some kind of hope that we might share in the profits of this?

Solomon Lee

Yes, Bertil can answer that, but I'll just answer shortly. We might get ourselves into trouble, but my intention is to build the company market cap into $2 billion, $3 billion within the next two, or three years. Now we have seen us building the operation. What I’m saying now is very possible for us to make that happen within the next two, three years. So then you go ahead please answer that question.

Bertil Tiusanen

Okay. I think that yes, we have had, we have had instances where we have even asked ourselves two or three times, is it okay for us to go ahead and release that information now. And our biggest concerns, as I think I even mentioned in our last call when we had our annual report was that we are taking a much conservative approach only because we are at the cusp of having some of these deals being completed, knowing that that’s going to be happening rather soon to be able to put information out there at this juncture, which would potentially cause a red flag to be raised with respect to the documentation supporting the material that we're putting out there.

That then makes us feel alert. We are getting to the end line. We're soon to be there. We're going to be able to make an official public announcement. We will have everything signed off and the Ts crossed, and the Is dotted. We won't have to worry then of not having what’s needed in order to be able to prove that these things are actually taking place. There is a lot more scrutiny being done today than it ever has by the SEC.

Now speaking of that, let me go back to something Solomon was talking about earlier with regard to the – of the aquaculture assets. We do have that one relationship that we've talked about with the contractor and there will and wants to be able to carry the load for the build out of Prawn Farm 4 until such time that production is online and then we will make interim payments over a period of approximately 3.5 years.

And in addition to that we have our Chinese partners who have agreed to take on the longer road with us and they will, we will then not be required to have to outlay immediate cash to be able to take their ownership completely in a way keeping in mind they are required to still are still hold and retain 25% ownership otherwise we wouldn’t have, what would be referred to and what was needed for tax purposes as a center joint venture operation.

That being said, we already have, we already verbal understanding with the contractor, verbal understanding with the Chinese partners. We are, Solomon alluded to, we are on the cusp of having a sizable working capital, loans being provided, a credit facility being provided to the company. Market rates extremely attractive. I cannot get 4the rate, let me just say this, I cannot get that rate here in the states. I would love to have that rate, again conventional, no equity required.

The SJAP projects we keep forgetting above that in a the way this that I don’t want us to forget about that because we are at the same time that we are working on the aquaculture carve-out, are working just as feverously on the SJAP carve-out. And as Solomon just alluded to just before I was talking here, the anticipation of what these are going to amount to as standalone entities, each on their own, each having themselves traded on which ever exchange desk suites those projects, are going to overwhelm the value that you find today with respect to our balance sheet. I don’t want to even go into the numbers that are being projected into the future, but I will say this Prawn Farm 4 by itself, just by itself will dwarf our Sino Agro Food balance sheet today and so that in and of itself.

That in and of itself, that is just one aspect, that’s one portion of the aquaculture carve-out is enough to keep me working and working with Solomon and the group toward getting these things to be made to happen in the near future. As a shareholder of Sino Agro Food, I mean if you look. If I’m asking I’m a large shareholder in Sino Agro Food that’s a public record. If I’m looking at this situation today, my feeling is I’m a shareholder because I’m getting a piece of that pie once the carve-out happens at aquaculture at the aquaculture farms.

Once the carve-out exist SJAP wanted to exist at the HU Plantations. I’m not giving up my shares and of course with what I can give up today, but in talking about this was from a shareholders' perspective. I myself looked forward those dividend again I can give that advice to others I’m telling you how I would, how I feel as a if I were putting on my shareholders cap, for those dividend distributions are going to be much, much for me, for the purposes of having Sino Agro shares in my account.

That being said, there are no grantees. We have to obviously work just in sort getting the carve-outs valued and on to the exchanges that are going to provide the best return for shareholders. We do have analysts that work on that on our behalf to help handle that, that's something that to be determine for each one but the door is still open. Things are moving forward. Solomon alluded to the fact that within a couple weeks we should be able to get something more…

Solomon Lee

I appreciate that. That is very promising and I guess just along those lines is that yes, we don’t get to see much, we don’t hear much and always seeing is the stock price. So it is nice to hear that and go to confidence there and I appreciate all you’re doing.

Bertil Tiusanen

You are welcome.

Daniel Ritchey

Maya, let's take one more web call and then get back to you. A question about for Mr. Sandberg, how you feel as a long time Chairman of the Jordan Fund and as a Board member about Sino Agro in general and the earnings per share lately?

Nils-Erik Sandberg

Well, Ritchey took lot of words from a mouth, a minute ago. So we have to comment about the same way as Ritchey did actually and when now see the financial side is going to be pretty good and the cash is coming into the company I think this would be a whether nice turnaround. We love the concept of the economical food and we love the concept of how everything is working on in China as we have been around and looked at the case many times. We also hook into Dan Ritchey’s comment of the aim to coming dividends and even may be buyback programs as soon as the company has the possibility to do so.

And then we are very confident in the shares. We haven’t filled the share, we have the time being taking on the pretty large number in the Europe [ph] on itself and we knew the members in the Europe maybe sometimes they call me and they are less happy when the shares goes down and a little bit more happy when shares goes up, but they are – as far as I – no big selling or any selling has going on.

We are just happy what we see we follow. Some actions like in the Madagascar or Australia and so these things happens as well as the weather in the [indiscernible] but this will be very shorter and we look forward for pretty nice future as soon as the part of this year. That's comments from the [indiscernible].

A – Daniel Ritchey

Maya, maybe another call from the queue?

Operator

Our next question comes from Mark [indiscernible] who is a Private Investor. Please go ahead. Your line is open.

Unidentified Analyst

Yes so I have a question for Dan. Dan, you spoke briefly on Mr. Sandberg mentioned it briefly also about buybacks, he asked the same question last quarter and I'd like to know what projects that you have that have a higher internal rate of return than presently doing a buyback with the loan that you might have lined up right now?

Daniel Ritchey

Well, buybacks as I mentioned earlier are something which we are working on as well as working on funding for the other aspects of our operations. And when it comes to building operations, I will say this, our priority just because of the fact that we do have outstanding obligations has to be our meeting those obligations with respect to day-to-day operations completing contractual arrangements made with contractors and otherwise and being able to have the funding available to be handing those aspects of it.

We are continuing to work toward getting funding more buybacks. There are some individuals I will say that have expressed to me, expressed to Solomon as well, that they don’t feel that buybacks are the optimal use of funding at this point in time and granted there are sort of metrics we put into play to make that determination as we are moving things forward.

What I will say is, there also are financial situations which limit our opportunity for buyback. If we’re going after loan funding they are then going to constrain how can we spent, not say that they prevent any buybacks from occurring. But we are limited as to what we can buyback and as well we are limited on from the SEC reg side. We are limited as to how much we can buy. Hopefully, we can make a difference. Hopefully, we can make an impact.

We’ve already had discussion with the trading desk in terms of trying setup an arrangement on or behalf. Again we have to make the performance is going to be in place that we have in this an important key, not just to be able to go in and buy today and make it work. We have to have a sustained buyback approach over a period of time and to do that we have to have the necessary funding either earmarked or already in hand to be able to make that type of commitment.

So yes, we're still working towards that end and hopefully we'll be able to make it work with the financial institutions we've been speaking with hoping to get sometime front and be able to have some money in addition for that as well.

Unidentified Analyst

Okay, I guess two quick, well two one there's no question, we haven’t heard news about Mr. Danielson [ph] or Arctic securities [ph] in a bit. Could you tell me their involvement at present and what they are doing for the company?

Daniel Ritchey

Well, I could speak to Frederick Danielson, and I'll let Solomon update you on Arctic he has had additional information, I haven’t, and I know that we had, as you mentioned, we had discussions with them working toward a solution. And we've also been working with as you're well aware Swedbank.

But with regard to Mr. Danielson, we had every good intention at the time when the announcement was being made for him to be able to join the board. After that has happened, because every individual that is joining the board, the SEC has a question here which has to be responded to.

With respect to independence, which was the primary reason for having him come on the board as well as his guidance and evaluation, which he still provides today not being on the board doesn't preclude him from doing that and we are very open to him at all times, as he well knows and there is continuous discussion going on with him in terms of helping the company.

That being said, the classification, the qualification as independent was coming into play and that's something which now has become more of an issue that the attorney or attorneys I will put that it is plural are looking at whether or not with respect to ECAB's holdings and with respect to his position with ECAB as to whether or not we can be able to obtain that independent status for him to be able to join.

Let me also mention too that there's nothing precluding yet at this stage of the game that he would not be available and again this would be totally up to him, as well as to the new company for the aquaculture carve-out. As to that may be an opportunity for him to take a role in the lead in that entity if for some reason we couldn’t get that to work out for SIAF.

So let me go back again and repeat, with regard to Frederick's, Mr. Danielson’s input and his suggestions of the company our lines have always remained open and we do talk to him on a regular basis, Solomon much more than me, but at the same time there is just to assure you and to all shareholders there are continuous dialogue going on, on a regular basis, not just with him either, we also have other productions too. But I wanted to make sure that that was made aware just to talk to him not doing on board, that doesn't mean he's not in communication with the company.

And the other question on Arctic, Solomon, have you had any additional words on that item at all?

Solomon Lee

Yes, as far as Mr. Danielson’s concerned he is working diligently and very, very hard in helping the company in the financing, the governance side, the corporate governance side, and the listing exercise. Actually he spends as much time as me, 14, 16 hours a day on the subject. And I think sure there will be something coming foothold on these efforts as well.

And the company’s view is he is most welcome to join the board and he is not just a close friend of mine, he is a very, very dedicated advisor and some of his inputs and suggestions are brilliant and we've taken most of what his suggestion into our higher level of consideration let's put it this way and some of them has been put in motion and we hope we will see all his efforts being rewarded in the near future and he is part of the team.

Operator

Solomon and Dan, at this point at your option would you like to extend this call further 15 minutes?

Daniel Ritchey

Do we, we still have callers in the queue?

Operator

We have one more person in the queue.

Daniel Ritchey

Let’s take one more call then.

Operator

Thank you. Our next question comes from John Harold from Harold & associates. Please go ahead sir. Your line is open.

Unidentified Analyst

Yes, I was just curious as to why the company never offers any forward guidance? Are you guys that uncertain about the business prospects going forward, is there that much uncertainty or you can’t give shareholders at least a range of guidance going forward.

Daniel Ritchey

Well, I think guidance yes, obviously guidance for the shareholder is there shareholder any company I look forward to. At the same time the fact is because of everything that we have underway right now concerned to carve-outs not knowing at this stage of the game as to what is going to be happening at what point in time to be able to give guidance for Sino Agro Food which is the holding company to know where its position will be at any point in time throughout this year is fully unpredictable.

At this juncture, to give a range it could be a pretty wide range we would have to give in order to be able to stay within guidance. But at the same time, we should be able to once we are able to get the carve-outs in play then each one of those LDs [ph] will be able to provide their own set of guidance and obviously for Sino Agro Food it will be a much easier proposition to be able to hit the mark obviously since we’re going to have certain amount of ownership and will base then our guidance on the guidance provided from these carve-out entities.

Unidentified Analyst

Well, we're three and a half weeks away from end of Q2. Obviously, you guys know enough to be able to tell shareholders, give us at least a ballpark where you going to come in this quarter, at least earnings per share wise, that’s not looking down the road and that’s not having to worry out carve-outs I mean it is what it is, so why don’t you at least start by giving us a figure for Q2?

Daniel Ritchey

Well, Q2, Q3 as well I think we have and there is certainly an opportunity for us to be able to get those numbers. But remember we do have each of these entities which handles their own financial arrangements. They also provide us with continuous speed on what is being spent, how it’s being spent. So we are receiving those on a regular basis, but to be able to have the opportunity and at this point, I’m just going to be, I’m going to be very conservative in my statement here. With us being able to provide a formal guidance, any guidance at this juncture, that is not going to require us having to restate guidance.

I’m not – I’m of the opinion right now that we are – we would be putting ourselves into a position where we will then have to turn around and make an adjustment and I would much prefer not having the market having to react to whatever adjustment is being made.

Unidentified Analyst

So with regards to…

Daniel Ritchey

Yes of course, the market hasn’t been very receptive to us with respect to the figures that come out as it is when it comes to the quarterly reports. But yet, yes I mean and again if there is guidance going to be given that’s what it will be, it will be on the low end. I will insist we have a very conservative outlook being put out there. But then again I have to also factor in respect to the markets reception and where we are and how we will potentially have to restate prior to the reports being provided, when it is provided.

I’m more lay of having the problems that could ensue from that to say okay, at this juncture let’s get things first in place with where we are going with the carve-outs this year and I would like to believe, I firmly feel that we have the opportunity starting in 2017, and especially each one of these entities being able the to start provide their own guidance which will then tell us where we are going to be with Sino Agro Food as well.

Probably that I would have taken conservative view and approach on that, but I do feel it’s needed at this point in time considering the market’s reception to some of the issues going on and what have you, it is not going to provide us right now with a comfort level to say we can put out something today that isn’t going to have to be potentially restated tomorrow.

Unidentified Analyst

Well by not putting out guidance, you’re scaring the market and I think the stock speaks for itself, but thanks for the answer.

Daniel Ritchey

Okay.

Operator

And due to the timeframe, this now concludes the Q&A. If you have any additional questions please email these to info@sinoagrofood.com. Solomon, would you like to give any closing remarks?

Solomon Lee

Thank you, moderator and thank you for everybody’s presence for tonight’s conference call. And we shall continue in the next conference call. Good night.

Operator

This now concludes the conference call. Thank you all for attending. You may now disconnect your lines.

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