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2016-05-16

Sino Agro Food: Sino Agro Food, Inc. Reports Q1 2016 Results

Revenue of USD 71.9 M with Diluted EPS of USD .39

Record Volumes in Value Added Processing, Beef imports, and
Aquaculture

May 16, 2016

GUANGZHOU, China-- Sino Agro Food, Inc. (OTCQX: SIAF | OSE: SIAF-ME)

Record Volumes Across the Board during Transitional Period

· The Aquaculture segment continued growth in overall sales volume
to 1,891 metric tons of prawns and seafood in Q1 2016, increasing
approximately 40% over both Q1 2015 (1,380 MT) and the Q4 2015 (1,325
MT). The introduction of mixed fish species contributed an increase
in gross profit of USD 1.1M.

· The Company continued to grow value added beef production to 2,177
MT in the first quarter of 2016 (vs. 1,227 MT in Q1 2015), resulting
in year over year revenue growth at QZH of 45 percent to USD 17.7M
(12.2), and gross profit growth of 22 percent to USD 4.9M (4.0).
Compared sequentially to Q4 2015, gross profits grew 53 percent.

The Company's Integrated Cattle segment fared favorably compared to
Chinese beef rearing peer companies, owing to value added production
and the herd transition.

· Total trading import volume grew to 1,050 MT in the first quarter
of 2016 (vs. 790 MT in Q1, 2015) as a result of record high beef
import volume of 970 MT (398MT).

· The Cattle Farm segment (MEIJI) improved overall gross margins to
maintain approximately equal gross profit by selling a higher
proportion of locally bred "Yellow Cattle" at higher price points
with an average weight of 350 Kg /head replacing lower margin beef
cattle averaging over 600 Kg/head.

Improved Gross Margins Lead to Positive Gross Profits, Given
Challenging External Conditions

A combination of product pricing pressures, supply shortages, and
severely reduced available days for project development restrained
results in the first quarter. Despite these factors, the Company did
manage to a gross profit within tolerance for sequential comparison.
We expect all of these factors to improve over the remainder of 2016.

In addition to the annual Chinese New Year holiday, inclement weather
and extraordinary factors resulted in a period of only three weeks to
perform contracted services throughout the first quarter. Without
these conditions, sequential quarterly total gross profit would have
increased by approximately USD 1.6M (or 7.5 percent).

· Stockholders' equity increased by USD 9.3M to USD 492.0M (482.7)
during the quarter.

Significant Progress toward Incremental Future Results:

Some progress during the quarter does not show up directly in the
quarterly financials, yet may be as significant or more significant
than current revenue, by bringing significant future results closer
to fruition.

· Initial stocking of tanks at Zhongshan's Prawn Farm 3 took place
during the quarter. The ongoing prawn life cycle trial is being used
to test and refine design changes intended to dramatically improve
technical efficiencies beyond the Company's existing RAS aquaculture
farms, leading to scaled, high yield production.

· Portions of the low margin domestic cattle herd were replaced
during the quarter by higher margin premium, albeit younger Wagyu and
Angus cattle that will not produce revenue until reaching full
growth.

Sequential Comparison:

The Company achieved the following results, comparing the first
quarter of 2016 to the fourth quarter of 2015:

+----------------------------------------+----------+----------+----------+
|(USDm, except per share and margin data)| Q1 '16| Q4 '15| %|
+----------------------------------------+----------+----------+----------+
|Revenue | 71.9| 98.1| -27%|
+----------------------------------------+----------+----------+----------+
|Gross Profit | 18.9| 21.4| -47%|
+----------------------------------------+----------+----------+----------+
|Gross Profit Margin | 26.2%| 21.8%| +20%|
+----------------------------------------+----------+----------+----------+
|Net Income | 13.5| 18.3| -26%|
+----------------------------------------+----------+----------+----------+
|Net Income attributable to SIAF | 8.6| 11.8| -27%|
+----------------------------------------+----------+----------+----------+
|Earnings Per Share (USD) - fully diluted| .39| .64| -39%|
+----------------------------------------+----------+----------+----------+

Below are the key points explaining year over year comparisons. The
following section, Outlook and Subsequent Events, explains the past
and recent developments already put into action to improve results,
starting in Q2 and progressively throughout 2016.

Key Points

· Short supply of eel elvers from last season adversely impacted aquaculture sales mix:

Aquaculture (CA and Tri-Way): Comparing Q1 2016 to Q1 2015, revenue
from the sale of goods declined 40 percent to USD 16.5M (27.8M), and
gross profit declined 46 percent to USD 3.8M (7.1). The introduction
of mixed fish species contributed an increase in gross profit of USD
1.1M (0), but the year over year decline from eels alone was USD
4.7M, more than the total decline of $3.3M.

· A severe sequential drop in domestic beef prices led to curtailing the sale of live cattle:

Integrated Cattle (SJAP): Revenue decreased 27.3 percent to USD 26.3
(36.2). Due to the relaxation of trade restrictions on beef imports
to China from 11 exporting countries, the price for live weight
domestic cattle fell from RMB32/Kg in mid-year 2015 to an average
price of RMB25/Kg in the fourth quarter of 2015, and bottomed at
another 40% lower to RMB15/Kg during the first quarter of 2016.
Accordingly, the Company curtailed its sales of live cattle to 851
head in the first quarter of 2016 (vs. 5,032 Q1 2015), resulting in
commensurate drops in revenue and gross profit.

· Supply shortage of imported seafood from constrained trading volume:

Seafood and Meat Trading: The decrease of 34% in revenue to USD 6.4M
was due to lower imports of seafood from Madagascar after its
government introduced policies restricting its export of seafood in
the second half of 2015. Total import volume grew to 1,050 MT in the
first quarter of 2016 (vs. 790 MT in Q1, 2015). Record high beef
import volume of 970 MT was insufficient to outweigh the seafood
shortfall because of lower beef ASP.

· Capital expenditure amounted to USD 20M during Q1, with the following main components:

USD 9.9M was invested into SJAP toward additional capacity, including
completion of cold storage; USD 3.4M in HSA for completion of cattle
facilities; and USD 3.1M invested into TRW/CA.

Two line items - the reduction in eel sales within the aquaculture
segment and curtailed sale of live cattle in the integrated cattle
segment -- explain 120 percent of the company-wide year over year
gross profit decrease in sale of goods, 66% and 54% respectively.

Outlook and Subsequent Events

From Q2 2016 and progressively beyond, the Company foresees growth in
all its business segments, stemming not only from possible improved
product mixes and pricing, but also because of newly constructed
capacities becoming productive, new sourcing avenues becoming
available, and some recent positive developments already put into
action:

Aquaculture: Poised for Rapid Growth

· The Company anticipates beginning commercial scale production and
sale of prawns at Zhongshan's Prawn Farm 3 early in the second half
of 2016. Achieving targeted production of 2,500 MT in 2016 alone
would double the total segment prawn production in 2015, and increase
total 2015 aquaculture volume and revenue by approximately 37
percent. More importantly, this sets the stage for full year ramp up
of Prawn Farm 3 in 2017 with targeted production of 10,000 MT, which
alone would increase 2016 full aquaculture segment production by
another 108 percent.

· Further, as first reported on the recent annual earnings
conference call, the Company is now finalizing contractual
arrangements to construct Prawn Farm 4 in six modules, each the size
of PF3, at a cost of approximately USD 4.00/Kg, considerably below
expenditures for PF1 through PF3. In addition, deferred payment terms
significantly enhance the ability of the project to self-fund ongoing
construction with cash flow from the sale of goods.

· Development underway at Prawn Farm 2 targets doubling the current
capacity of 2.5 billion postlarvae prawns per year to 5.0 billion in
2017, and adding another 50% to 7.5 billion in 2018.

Integrated Cattle: Upgrades to Improve Margins and Profit

As highlighted for some time, the Company is transitioning the beef
business in three major ways:

· Reducing the overall herd size by approximately 50% from 20,000 to
10,000 by the end of 2018, and replacing domestic cattle with premium
Wagyu cattle and 550-day grain fed Angus cattle. This transition is a
deliberate process by definition, but will add dramatically higher
profit margin products incrementally to the mix of live cattle sales.

· Continuing to expand deboning, packaging and cold storage
facilities and throughput to process more imported beef into higher
margin down stream products; i.e., freshly chilled and packaged
frozen meats.

· Adding dried and canned meat lines into the value added processing
sector to round out higher value brand products. Accordingly, the
plan for SJAP's canning facility to be on line in 2017 is on
schedule.

Trading: New Sourcing and Facilities to Boost Volumes

· Shipments of live lobster and snow crab from the U.S. and Canada
commenced late in the first quarter with volume at the Shanghai
Distribution Center passing 3 MT per week in April, aiming for 5 MT
per week by the end of Q2.

· Trial shipments of live tropical crayfish have been imported from
Pakistan. Limited supply has created extremely attractive prices that
will lift gross margins within this segment line item, even with
relatively small volumes.

· The Shanghai Distribution Center and a group of local seafood
dealers at HunChun City, a northeast China city bordering Russia, are
now developing a joint venture collection center operation. Crabs,
marine prawns, and shellfish will be processed, frozen, packed, and
shipped to the Shanghai Distribution Center for further distribution
to regional seafood houses. Trial shipments are already underway and
have proven successful. Russia has an ample supply of quality
seafood, becoming one of China's fastest developing import suppliers
in the seafood industry. We expect this venture to boost our seafood
trade from Q2 2016 onward, as well.

· In conce...

Författare WKR

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