OTC Markets Group (OTCM): Tell us about your company.
Solomon Lee: As an investment company focused on food production, SIAF develops and operates protein food businesses in the People's Republic of China. The Company produces, distributes, markets, and sells premium seafood and beef to the rapidly growing Chinese middle class. Activities also include production of organic fertilizer and produce. SIAF is a global leader in developing land based recirculating aquaculture systems (“RAS”), and with its partners, is the world's largest producer of sustainable RAS prawns.
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Founded in 2006 and headquartered in Guangzhou, the Company has over 550 employees and revenue of USD 429 million in 2015. To date, our revenue has grown approximately 40 percent per annum. Operations are located in the Guangdong, Qinghai, and Hunan provinces of China and in Shanghai. Sino Agro Food is a public company listed on OTCQX U.S. Premier in the United States and on the Oslo Børs’ Merkur Market in Norway.
With a market capitalization of over USD 150 million, Sino Agro Food is one of the larger companies on OTCQX U.S. Premier, and the largest company with operations and headquarters in China listed on the U.S. OTCQX market.
OTCM: What were your major accomplishments for the last year?
Mr. Lee: During 2015 we accomplished three major milestones:
a) Sino Agro Food’s Aquaculture division commissioned part of its Zhongshan Aquaculture Megafarm, the world’s largest recirculating aquaculture project. Our long-term framework is to achieve output capacity of 200,000 metric tons. During 2015, Sino Agro Food harvested a total of 6,800 metric tons of seafood from its aquaculture operations, a harvest volume we anticipate growing significantly to circa 60,000 metric tons by 2020.
b) In 2015, we successfully transformed our live cattle beef business integrating into value–added processing as well as imported of beef, respective of the drastically changing beef industry during 2014 and 2015 in China. By the end of 2014, the PRC government dropped quotas and tariffs on imported beef, exposing the domestic Chinese beef industry to international markets – an industry, which had been protected from foreign competition the last sixty years through strict trade barriers. Thanks to foresight within the camp, we refocused our beef business adapting to changes beginning with a ramp-up of imported beef and trading of imported beef products. Today we are growing our beef business at double-digit rates each quarter with a total of 2,600 metric tons of beef imported and 5,900 metric tons of beef processed in 2015. Our focus is to be as feasibly adaptive and flexible when it comes to an ever-changing environment in a developing market like China.
c) We upgraded our listing platform in the U.S. to OTCQX Premier from OTCQB, and accomplished a secondary listing in Europe with Sino Agro Food being admitted to the Merkur Market in Norway. The Merkur Market is a part of the Oslo Stock Exchange, the world’s largest capital market for seafood companies, where significant interest in our land-based aquaculture systems has been well received.
OTCM: What are you focused on in the year ahead? Can you tell us about your company’s 3 to 5-year growth strategy?
Mr. Lee: We will continue building scale in our two main segments throughout the year: aquaculture, and our vertically integrated beef operation, namely cattle rearing and associated feed production, value added processing of beef, and marketing and trading of beef products. As well as having significant scale-up potential, these segments provide the highest return on invested capital.
Our focus in aquaculture is mainly on the Zhongshan MegaFarm, which has the right conditions to become a very sizeable aquaculture operation. The first phase, “Prawn Farm 3”, with a capacity of approximately 10,000 metric tons of prawn and seafood will be completed this year. Continuing onto the second phase of construction, “Prawn Farm 4”, this segment is projected to have total production capacity of circa 60,000 metric tons of prawn and seafood, estimated to be completed before 2020. In order to control the value chain, we also are preparing to initiate brood stock rearing, in addition to the prawn hatchery and nursery facilities operating today.
In the beef sector, we will continue to build on integrating ourselves into value added processing and beef importing further entrenching our position as a full-service producer and distributor of beef in China. Our live cattle operation in Western China, in the Qinghai province, is already one of the region’s largest players, and our target is to expand this further based on the growing trend of both processed and partially processed beef products stemming mainly from Australia.
Since the founding of the company in 2006, the focus of Sino Agro Food, a protein food investment company, has been to capitalize on the modernization of China’s food industry, and target the food product categories most promising for a producer, processor and distributor. As of today, our main focus is protein foods, specifically beef and prawns. The combination of these product categories is anticipated to grow at an above average rate in China over the next five to ten years. When combined with our subsidiaries’ already established competitive advantages in these sectors, we see the Company becoming an industry leader in the vertically aligned food-supply chain over the long-term.
From a financial perspective, it should be noted that we have initiated restructuring of the aquaculture segment preparing it for a separate exchange listing intent on improving visibility underlying the value of our assets and their high profitability. Steps also are being taken in preparation for separate listing of our other subsidiaries, again in an effort to align those operations and assets with peer market valuations.
OTCM: Sino Agro Food joined the OTCQX market in January 2016. Why did you choose OTCQX?
Mr. Lee: Excluding ADR listed companies, Sino Agro’s market capitalization of USD 151 million and operating income of USD 93 million makes the Company one of the largest issuers on the OTCQX U.S. market, making a listing on the OTCQX Premier a natural choice. OTCQX is seen as a natural progression for the Company in answering the call as to what works in its shareholders’ best interests.
OTCM: What else do you like investors to know about your company?
Mr. Lee: Sino Agro Food has enjoyed strong growth since the Company initiated its business activities in China in 2006, growing revenue with a compounded annual growth rate of 41 percent from founding to date. During the 2015 fiscal year, the Company’s consolidated revenues amounted to USD 429 million. The four principal factors that continue to enable our growth are:
a) Joint venture investments with existing local Chinese investors in agriculture and aquaculture;
b) Technological competitive advantages in recirculating aquaculture, beef rearing and livestock slaughter;
c) Strong growth in Chinese consumer demand for quality protein food; and
d) The Chinese Government’s policy to consolidate the agrarian sector and increase the efficiency of China’s food production industry.
These four factors are predicted to continue in SIAF’s favor over a long period of time, providing us the opportunity to expand our operations throughout China while feeding an ever growing middle-class in the largest evolving consumer market in the world.
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