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SIAF > SEC Filings for SIAF > Form 10-K on 11-Apr-2014All Recent SEC Filings

Show all filings for SINO AGRO FOOD, INC.

Form 10-K for SINO AGRO FOOD, INC.


11-Apr-2014

Annual Report


ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of financial condition and results of operation together with the financial statements and the related notes appearing beginning on page F-1 of this Annual Report. The various sections of this discussion contain a number of forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this Annual Report. See "Risk Factors" beginning on page 38 of this Annual Report. Our actual results may differ materially.

Forward-looking Statements

We and our representatives may from time to time make written or oral statements that are "forward-looking," including statements contained in this Annual Report and other filings with the SEC, reports to our stockholders and news releases. All statements that express expectations, estimates, forecasts or projections are forward-looking statements. In addition, other written or oral statements which constitute forward-looking statements may be made by us or on our behalf. Words such as "expect," "anticipate," "intend," "plan," "believe," "seek," "estimate," "project," "forecast," "may," "should," variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in or suggested by such forward-looking statements. We undertake no obligation to update or revise any of the forward-looking statements after the date of this annual report to conform forward-looking statements to actual results. Important factors on which such statements are based are assumptions concerning uncertainties, including but not limited to, uncertainties associated with the following:

Inadequate capital and barriers to raising the additional capital or to obtaining the financing needed to implement our business plans;

Our failure to earn revenues or profits;

Inadequate capital to continue business;

Volatility or decline of our stock price;

Potential fluctuation in quarterly results;

Rapid and significant changes in markets;

Litigation with or legal claims and allegations by outside parties; and

Insufficient revenues to cover operating costs.

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Description and interpretation and clarification of business category on the consolidated results of the operations

l Fishery Division refers to the operations of Capital Award Inc., covering its consulting service and seafood sales operations , where;

Capital Award generates revenue as being the sole marketing, sales and distribution agent of the fishery farms (covering both of the fish and prawn farms) developed by Capital Award in China as follows:

(A). Engineering and Technology Services via Consulting and Service Contracts ("CSC's") for the development, construction, and supply of plant and equipment, and management of fishery (and prawn or shrimp) farms and related business operations.

(B). Seafood Sales

Capital Award generates revenue as the sole marketing, sales and distribution agent for the fish and prawn farms developed by Capital Award in China as follows:

(1) Sales to SJVC's and sales derived from the SJVC (currently, only the JFD subsidiary is an SJVC) are being consolidated into TRW as one entity.

(2) Sales to and sales derived from un-incorporated companies (covering EBAPCD and ZSAPP) are accounted for independently as follows:

CA and EBAPCD: (a). CA purchases prawn fingerling and feed stocks from third party suppliers and resells to EBAPCD at variable small profit margins and (b). CA purchases matured prawns from EBAPCD and sells to third parties (in wholesale markets) at a gross profit margin around 15%.

CA and ZSAPP: (a). CA earns commission from the sale of prawn fingerlings that are sold by ZSAPP to third parties, and in this respect ZSAPP produces its own prawn fingerlings as compared to CA purchasing them for EBAPCD, as described above, and (b). CA purchases matured prawns from ZSAPP and sells to third parties (in wholesale markets) at a gross profit margin around 15%.

l Plantation Division refers to the operations of JHST in the HU Plantation business. JHST's financial statements are consolidated into the financial statements of MEIJI as one entity.

l Beef Division refers to the fattening and sale of beef cattle operations of SJAP. SJAP's financial statements are consolidated into the financial statements of A Power Agro Agriculture Development (Macau) Ltd. (APWAM) as one entity.

l Organic Fertilizer Division refers to (i) the operation of SJAP in manufacturing and sales of organic fertile, bulk livestock feed and, concentrated livestock feed and (ii) the operation of HSA in manufacturing and sales of organic fertilizer. Financial statements of the both companies are being consolidated into APWAM as one entity.

l Cattle Farm Division refers to the operations of Cattle farm 1 under JHMC, the financial statements of which are consolidated into MEIJI as one entity along with MEIJI's operation in the consulting and service for development of other cattle farms (e.g., Cattle Farm 2) or related projects.

l Corporate & Other Division (or Marketing & Trading) refers to the business operations of Sino Agro Food, Inc., including import/export business and consulting and service operations provided to projects that not included in the above categories, and not limited to corporate affairs.

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l .

MD & A OF CONSOLIDATED RESULTS OF OPERATIONS

Part A. Income Statements of Consolidated Results of Operations for the Fiscal year 2013 compared to the Fiscal year 2012

A (1) Income Statements



In $                                          Audited           Audited         Difference          Note
                                               2013              2012

Revenue                                      261,425,813       138,613,639       122,812,174              1
Consulting, services, commission and
management fee                                52,811,772        50,541,312         2,270,460
Sale of goods                                208,614,041        88,072,327       120,541,714
Cost of goods sold and services              159,894,663        68,807,471        91,087,192              2
Consulting, services, commission and
management fee                                20,548,608        18,248,957         2,299,651
Sale of goods                                139,346,055        50,558,514        88,787,541
Gross Profit                                 101,531,150        69,806,168        31,724,982              3
Consulting, services, commission and
management fee                                32,263,164        32,292,355           (29,191 )
Sale of goods                                 69,267,986        37,513,813        31,754,173
Other income (expenses)                        1,769,873         1,832,234           (62,361 )            4
General and administrative expenses           (8,859,777 )      (8,385,862 )        (473,915 )            5
Net income                                    94,441,246        63,252,540        31,188,706

EBITDA                                        98,337,533        65,922,130        34,081,789
Depreciation and amortization (D&A)           (3,502,697 )      (2,387,270 )      (1,115,427 )            6
EBIT                                          94,834,836        63,534,860        31,299,976
Net Interest                                    (393,592 )        (282,320 )        (111,272 )
Tax                                                    -                 -                 -
Net Income                                    94,441,244        63,252,540        31,188,704
Non - controlling interest                   (20,234,717 )      (5,706,708 )     (14,528,009 )            7
Net income to SIAF Inc. and subsidiaries      74,206,527        57,545,832        16,660,695
Weighted average number of shares
outstanding
- Basic                                      119,730,338        82,016,910        37,713,428
- Diluted                                    127,437,187        92,016,910        35,420,277
Earnings Per Share (EPS)                                                                                  8
- Basic                                             0.62              0.70             (0.08 )
- Diluted                                           0.58              0.63             (0.04 )

This Part A discusses and analyzes certain items (marked with notes) that we believe would assist our shareholders in obtaining a better understanding on the Company's results of operations and financial condition:

Note (1,2 & 3) Sales, cost of sales and gross profit information and Analysis:

l The Company's revenues were generated from (1) Sale of Goods and (2) Consulting and services provided in project and business developments covering engineering, construction, supervision, training, managements and technology etc.

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Table (A.1) below shows the items, quantities, average selling price and average unit cost of goods sold for the fiscal years 2013 and 2012

                                                                                                                        Percentage
Subsidiary            Description of items                               2013            2012         Difference        of change
SJAP         Cattle Operation
             Production and Sales of live cattle           Heads            9,375           4,312           5,063               117 %
             Average selling price                        $/head            3,461           3,454               7                 0 %
             Average unit cost                            $/head            2,265           2,649            (384 )             (14 )%
             Production and sales of feedstock                                                                  -
             Bulk Livestock feed                              MT           38,194          10,134          28,060               277 %
             Average selling price                          $/MT              155             132              23                18 %
             Average unit cost                              $/MT              110              77              33                43 %
             Concentrated livestock feed                      MT           31,717               -          31,717
             Average selling price                          $/MT              418               -             418
             Average unit cost                              $/MT              257               -             257
             Production and sales of fertilizer               MT           60,509          29,169          31,340               107 %
             Average selling price                          $/MT              175             168               7                 4 %
             Average unit cost                              $/MT               80              81              (1 )              (2 )%
HSA          Fertilizer and Cattle operation
             Organic Fertilizer                               MT           19,230           5,421          13,809               255 %
             Average selling price                          $/MT              323             210             113                54 %
             Average unit cost                              $/MT              238             176              62                35 %
             Organic Mixed Fertilizer                         MT           12,775           2,780           9,995               360 %
             Average selling price                          $/MT              413             387              26                 7 %
             Average unit cost                              $/MT              193             276             (83 )             (30 )%
             Plantation of HU Flowers and Immortal
JHST         vegetables
             Fresh HU Flowers                             Pieces       14,383,484       7,826,069       6,557,415                84 %
             Average selling price                      $/Pieces             0.15            0.13            0.02                13 %
             Average unit cost                          $/Pieces             0.05            0.03            0.01                35 %
             Dried HU Flowers                                 MT            1,504           1,183             321                27 %
             Average selling price                          $/MT           12,412           9,151           3,261                36 %
             Average unit cost                              $/MT            5,843           4,033           1,811                45 %
             Dried Immortal vegetables                        MT               10               -              10
             Average selling price                          $/MT          152,534               -         152,534
             Average unit cost                              $/MT           48,942               -          48,942
             Other Value added products                   Pieces        60,000.00               -          60,000
             Average selling price                      $/Pieces                8               -               8
             Average unit cost                          $/Pieces                3               -               3
CA           Production and sale of fish and prawns
             Fish (Sleepy cods)                               MT            2,616           1,765             852                48 %
             Average selling price                          $/MT           15,170          25,608         (10,438 )             (41 )%
             Average unit cost                              $/MT           12,450          13,324            (874 )              (7 )%
             Eels                                             MT            1,661               -           1,661
             Average selling price                          $/MT           16,590               -          16,590
             Average unit cost                              $/MT            8,925               -           8,925
             Prawns                                           MT              417               -             417
             Average selling price                          $/MT           12,280               -          12,280
             Average unit cost                              $/MT            9,770               -           9,770
             Production and sale of live cattle
MEIJI        (Aromatic)                                    Heads            5,597           1,655           3,942               238 %
             Average selling price                        $/head            3,157           3,600            (443 )             (12 )%
             Average unit cost                            $/head            2,351           2,787            (436 )             (16 )%
SIAF         Seafood trading/import/export
             Mixed seafood                                    MT            1,521             322           1,198               372 %
             Average selling price                          $/MT           14,498           5,270           9,228               175 %
             Average unit cost                              $/MT           12,600           3,409           9,191               270 %

-59-

Table (A.2) below shows the sale of goods, cost of sales and gross profit for the fiscal years 2012 and 2013

                     In $                                             Sales of Goods                  Costs of goods sold                   Gross profit
                                                                  2013              2012             2013              2012             2013             2012
Fishery
CA                   Sales of fish and prawns
                     Fish (Sleepy cods)                          39,691,498       45,189,788        32,574,763       23,512,812        7,116,735       21,676,976
                     Eels                                        27,552,690                -        14,823,189                -       12,729,501                -
                     Prawns                                       5,118,792                -         4,072,524                -        1,046,268                -
                     CA and Fishery Total                        72,362,980       45,189,788        51,470,476       23,512,812       20,892,504       21,676,976
Plantation
JHST                 Sales of Fresh HU Flowers                    2,193,971        1,052,844        660,550.36          265,555        1,533,420          787,289
                     Sales of Dried HU Flowers                   18,668,070       10,825,755         8,788,077        4,770,400        9,879,993        6,055,355
                     Sales of Dried Immortal vegetables           1,464,327                -           469,844                -          994,483                -
                     Sales of Other Value added products            488,109                -           183,041                -          305,068                -
                     JHST and Plantation Total                   22,814,476       11,878,599        10,101,512        5,035,955       12,712,964        6,842,644
Beef
SJAP                 Sales of live cattle                        32,448,531       14,892,310        21,234,097       11,421,676       11,214,435        3,470,634
                     Beef Total                                  32,448,531       14,892,310        21,234,097       11,421,676       11,214,435        3,470,634
Organic fertilizer
SJAP                 Sales of feedstock
                     Bulk Livestock feed                          5,930,401        1,337,709         4,208,387          780,951        1,722,013          556,758
                     Concentrate livestock feed                  13,269,506                -         8,140,417                -        5,129,089                -
                     Sales of  fertilizer                        10,579,242        4,904,507         4,828,517        2,372,145        5,750,725        2,532,362
                     SJAP Total                                  62,227,680       21,134,526        38,411,418       14,574,772       23,816,262        6,559,754
HSA                  Sales of Organic fertilizer                  6,213,256        1,138,134         4,573,209          955,994        1,640,047          182,140
                     Sales of Organic Mixed Fertilizer            5,277,139        1,074,904         2,467,261          767,037        2,809,878          307,867
                     HSA Total                                   11,490,395        2,213,038         7,040,470        1,723,031        4,449,925          490,007
                     Organic fertilizer Total                    41,269,544        8,455,254        24,217,791        4,876,127       17,051,752        3,579,127
Cattle farm
MEIJI
                     Sale  of Live cattle (Aromatic)             17,671,418        5,957,870        13,161,262        4,613,074        4,510,156        1,344,796
                     MEIJI and cattle farm Total                 17,671,418        5,957,870        13,161,262        4,613,074        4,510,156        1,344,796
Corporate
SIAF
                     Sales of Seafood trading/import/export      22,047,092        1,698,506        19,160,917        1,098,870        2,886,175          599,636
                     SIAF and Corporate total                    22,047,092        1,698,506        19,160,917        1,098,870        2,886,175          599,636

Group Total                                                     208,614,041       88,072,327       139,346,055       50,558,514       69,267,986       37,513,813

-60-

Table (A.3) below shows the percentage of gross profit for the fiscal year2012 and 2013

        Gross Profit in % of sale of goods              2013           2012         Difference
Fishery
CA
Fish (Sleepy cods)                                           18 %           48 %            (30 )%
Eels                                                         46 %            -                -
Prawns                                                       20 %            -                -
CA and Fishery Gross Profit                                  29 %           48 %            (19 )%

Plantation
JHST
Fresh HU Flowers                                             70 %           75 %             (5 )%
Dried HU Flowers                                             53 %           56 %             (3 )%
Dried Immortal vegetables                                    68 %            -                -
Other Value added products                                   63 %            -                -
JHST and Plantation Gross Profit                             56 %           58 %             (2 )%

Beef
SJAP
Live cattle                                                  35 %           23 %             12 %
Beef Gross Profit                                            35 %           23 %             12 %

Organic fertilizer
SJAP
Feedstock
Bulk livestock feed                                          29 %           42 %            (13 )%
Concentrated livestock feed                                  39 %            -                -
Fertilizer                                                   54 %           52 %              2 %
SJAP Gross Profit                                            38 %           31 %              7 %
HSA
Fertilizer                                                   26 %           16 %             10 %
Organic mixed fertilizer                                     53 %           29 %             24 %
HSA Gross Profit                                             39 %           25 %             14 %
Organic fertilizer Gross Profit                              41 %           42 %             (1 )%

Cattle farm
MEIJI
Sale of live cattle (Aromatic)                               26 %            -                -
MEIJI and Cattle farm Gross Profit                           26 %            -                -

Corporate
SIAF                                                         33 %           43 %             (9 )%
Seafood trading/import/export                                33 %           43 %            (10 )%
Corporate and SIAF Gross Profit

Group Total Gross Profit on sale of goods
(excluding C, S, C &C)                                       33 %           43 %            (10 )%

Revenues (sale of goods)

Revenues generated from sale of goods increased by $120,541,714 (or 137% from $88,072,327 for the year ended December 31, 2012 to $ 208,614,041 for the year ended December 31, 2013). The increase was primarily due to increase of revenue from organic fertilizer by $32,814,290 and was attributable to 27% of total increase of $120,541,714. Revenue from organic fertilizer of $41,269,544 (2012:
$8,455,254) was attribute 20% (2012: 101%) to total of revenue generated from sale of goods of $208,614,041 (2012: $88,072,327).

-61-

Fishery: Revenue from fishery increased by $ 27,173,192 (or 60%) from $45,189,788 for the year ended December 31, 2012 to $72,362,980 for the year ended December 31, 2013. The increase in fishery was primarily due to our increase in revenue from the sale of eels and prawns. Sale of eels and prawns of $32,671,482 (2012: $Nil) attribute to 45% (2012: Nil%) of total revenue of fishery of $72,362,980 (2012: $45,189,788).

Plantation: Revenue from our plantation increased by $10,935,877 (or 92%) from $11,878,599 for the year ended December 31, 2012 to $ 22,814,476 for the year ended December 31, 2013. The increase was primarily due to the increase of selling price of dried HU Flowers of $1,504 per MT (2012: $1,183 per MT) by 27%.

Beef: Revenue from beef increased by $17,556,221 (or 118%) from $14,892,310 for the year ended December 31, 2012 to $32,448,531 for the year ended December 31, 2013. The increase was primarily due to shortening the fattening period of the cattle by stocking older cattle and increasing faster turnaround of sales (i.e. fattening 16 months and older cattle at the farm for 3 months in 2013 instead of fattening 14 - 15 months old cattle for 5 to 6 months).

Organic fertilizer: Revenue from organic fertilizer increased by $32,814,290 from $8,445,254 for the year ended December 31, 2012 to $41,269,544 for the year ended December 31, 2013. The increase was primarily due to the increase of both volume of production 130,740MT (2012: 47,504MT) by 175% and the selling price of bulk live feed of $155/MT (2012: $132/MT) by 17%, organic fertilizer of $323/MT
(2012: $210/MT) by 54% and organic mixed fertilizer of $413/MT (2012: $387/MT)
by 7%.

Cattle farm: Revenue from cattle farm increased by $11,713,548 (or 197%) from $5,957,870 for the year ended December 31, 2012 to $17,671,418 for the year ended December 31, 2013. The increase was primarily due to the increase of the quantities of cattle being grown in the farm of 5,597 head (2012: 1,655 head) by 238% even though the selling price decreased to $3,157 per head (2012: $3,600 per head) by 12%.

Corporate: Revenue from the corporate increased by $20,348,586 (or 1,198%) from $1,698,506 (restated) for the year ended December 31, 2012 to $22,047,092 for the year ended December 31, 2013. The increase was primarily due to more category of sea food being marketed in 2013.

Cost of Goods Sold (sale of goods)

Cost of goods sold increased by $88,787,541 (or 176%) from $50,558,514 for the year ended December 31, 2012 to $139,346,055 for the year ended December 31, 2013. The increase was primarily due to increase of sales of goods from fishery by $27,957,664 and cost of goods sold from fishery of $51,470,476 (2012:
$23,512,812 (restated) attribute 37% (2012: 47%) of total cost of goods sold $139,346,055 (2012: $50,558,514).

Fishery: Cost of goods sold from fishery increased by $ 27,957,664 (or 119%) from $23,512,812 (restated) for the year ended December 31, 2012 to $51,470,476 for the year ended December 31, 2013. The increase in cost of goods from fishery was primarily due to our increase in quantity of goods sold of sleepy of 2,616 MT (2012: 1,765MT), Eels of 1,661MT (2012: Nil MT) and prawns of 417MT (2012:
Nil MT) even though average unit cost of sleep cod of $12,450/MT (2012:
$13,324/MT) dropped slightly by 7%.

Plantation: Cost of goods sold from plantation increased by $5,065,557 (or 101%) from $5,035,955 for the year ended December 31, 2012 to $10,101,512 for the year ended December 31, 2013. The increase was primarily due to the increase of quantity of production of dried HU Flowers of 1,504 MT (2012: 1,183 MT) by 27.14% after implementation of soil revitalization program implemented earlier in the season.

Beef: Cost of goods sold from beef increased by $9,812,421 (or 86%) from $11,421,676 for the year ended December 31, 2012 to $21,234,097 for the year ended December 31, 2013. The increase was primarily due to the increase of quantity of cattle of sold 9,375 heads (2012: 4,312 heads) increased by 117% shortening the fattening period of the cattle by stocking older cattle and increasing faster turnaround of sales (i.e. fattening 16 months and older cattle at the farm for 3 months in 2013 instead of fattening 14 - 15 months old cattle for 5 to 6 months) even though the unit cost of cattle decreased slightly to $2,265/head (2012: $2,649/head) by 14%.

-62-

Organic fertilizer: Cost of goods sold from organic fertilizer increased by $19,341,664 from $4,876,127 for the year ended December 31, 2012 to $24,217,791 for the year ended December 31, 2013. The increase was primarily due to the increase of both volume of production 130,740MT (2012: 47,504MT) by 175% and the increase of unit cost of bulk live feed of $110/MT (2012: $77/MT) by 43%, organic fertilizer of $238/MT (2012: $176/MT) by 35%.

. . .

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