Future FinTech Group Inc. (FTFT) Q2 2015 Earnings Report, Transcript and Summary

Greetings. Welcome to the SkyPeople Fruit Juice's Second Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. David Rudnick, Investor Relations representative. Mr. Rudnick, you may now begin.

Thank you, Rob. Good morning ladies and gentlemen, and good evening to those of you joining from China. I am David Rudnick of Precept Investor Relations, and I would like to welcome all of you to SkyPeople Fruit Juice Inc.'s second quarter 2015 earnings conference call. The company has filed its Form 10-Q with the SEC on Friday, August 14, and issued its earnings press release on that date as well. Joining us from the company today are Mr. Yongke Xue, SkyPeople's Chief Executive Officer; and Mr. Xin Ma, the company's Chief Financial Officer. Mr. Ma will provide translation for Mr. Xue in his opening remarks, as well as for the Q&A session. Before we start, I would like to remind our listeners that on this call, management's prepared remarks contain forward-looking statements which are subject to risks and uncertainties, and the management may make additional forward-looking statements in response to your questions. Therefore the company claims the protection of the Safe Harbor for forward-looking statements that is contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from those discussed today, due to various risks including but not limited to such factors as unanticipated changes in product demand or market acceptance of the company's products, the company's ability to meet its financial guidance, competition in the marketing and sales of its products, the successful development of projects and its R&D pipeline, and other information detailed from time to time in its filings and future filings with the SEC. Accordingly, although the company believes that the expectations reflected in such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct. In addition, any projections as to the company's future performance represent management's estimates as of today, August 17, 2015. SkyPeople assumes no obligation to update these projections in the future as market conditions change. With that, it is my pleasure to turn the call over to SkyPeople's Chief Executive Officer, Mr. Yongke Xue, who will provide some opening remarks in Chinese. Mr. Xue?

[Foreign language]

First of all, on behalf of the SkyPeople management, my appreciation for everyone for joining this conference call today. The quarterly report that we filed on Friday, we have reported operating results, cash flow status for the first half of 2015, and also the financial conditions of the company as of the end of June. Compared with operating results for the same period of pervious year, the company's business had shown strong and steady growth. We managed to reduce not only raw materials purchase price and production costs, but also various costs in connection with our operations. As a result, during the second quarter of 2015, our net profit has increased strongly.

[Foreign language]

After years of adjustments to our business, SkyPeople has successfully transformed from a fruit juice concentrate manufacturer to a fruit juice beverage producer; thanks to our strong perseverance [ph] in the fruit juice concentrate production business. During the past few years, we've focused on defending [ph] the fruit juice beverages sales channel, which also helped expanding our business in this production line. The company's transformation has reflected strategic decisions of the Board and the management.

[Foreign language]

One of our major challenges is the progress of major investment projects, which are behind schedule. We fully understand shareholder's concerns about the progress of those projects, and is focused on solving the problems which caused the delay, and to accelerate those products. This [indiscernible] which is the provision [ph] we made for future finances. Management is confident that with the rapid growth of the Chinese economy and growing concerns of consumer for a healthy lifestyle, we will in future be the company to achieve more significant achievements. I'll now review the financial results for the second quarter of 2015 in further detail. Revenue for the second quarter of 2015 was $12.2 million, an increase of 2%, as compared to $12 million for the second quarter of the previous year. This increase was primarily due to an increase in the sales of concentrated pear juice, fruit juice beverages, and kiwis related products partially offset by a decrease in the sales of the apple-related products segment. The fruit juice beverages segment comprised 91% of total revenue for the three months ended June 30, 2015 as compared to 92% of total revenue for the same period in the previous year. The segment now represents a substantial proportion of the company's revenue. And now for our sales by product segments; sales from apple-related products were approximately $50,000 for the second quarter of 2015, a 94% decrease from sales of $0.77 million for the same period of 2014. Although volume declined substantially, the unit selling price of concentrated apple juice increased, compared to the same period a year ago. For the second quarter of 2015, the company has sold approximately 11 tons of concentrated apple juice, decrease from 480 tons of concentrated apple juice sold in the same period of 2014. Sales from concentrated kiwi juice and kiwi puree were $42,000 for the current period, a few [ph] increase from the sales of only $5,000 for the same period of 2014, which is attributable to an increase in the amount of products sold, as well as an increase in unit selling price. For the second quarter of 2015, the company has sold approximately 9 tons of kiwi-related products, increase from 2.7 tons of kiwi-related products sold during the same period of 2014. Sales of concentrated pear juice were $988,000 for the current period, increase from sales of $190,000 for the same period of 2014. This was primarily a result of an increase of the amount of products sold, offset by a decrease in unit selling price drop [ph]. For the second quarter of 2015, the company sold approximately 578 tons of concentrated pear juice, increase from 100 tons of the products sold during the same period one year ago. Sales from our fruit juice beverages segment were $11.1 million for the current period increase from $11.0 million for the same period 2014. The increase in revenue was primarily due to gains in market share attributable to our continuous efforts of expanding this sales channel. Sales from fruit juice fresh [ph], and vegetables, and other product segments were nil for the three months ended June 30, 2015, as compared to the sales of $20,000 for the same period of 2014. The amount of sales from this product segment is expected to be unstable. Gross profit was $5.1 million for the second quarter of 2015, increase from $4.6 million for the same period a year ago. The consolidated gross profit margin was 42% for the second quarter this year, as compared to 38% for the same period a year ago. Operating expenses were $1.5 million for the second quarter of 2015, was 12% of sales, decreased from $2.4 million or 20% of sales for the same period of 2014. General and administrative expenses decreased to $0.3 million for the second quarter of 2015, from $1 million for the same period of 2014, mainly due to reverse [ph] in the provision of doubtful debt that we made to reflect management's estimations to the collectability of accounts receivables. During the second quarter of 2015, the company executed stronger control over its accounts receivables, and we managed to reduce our general and administrative expenses as well. Selling expenses decreased to $1.3 million for the second quarter of 2015, from $1.4 million for the same period of 2014. In terms on operations, for the second quarter of 2015, was $3.6 million, an increase of 64% from $2.2 million for the same period of 2014. Net income attributable to SkyPeople Fruit Juice for the second quarter of 2015 was $2.1 million, as compared to $0.05 million in the second quarter of 2014. Our earnings per share was $0.08 in the current period, as compared to nil for the same period of 2014. Now, turning to the company's current financial position; as of June 30, 2015, the company had $63.6 million in cash, cash equivalents, and restricted cash, an increase of $31.9 million, from $31.7 million as of fiscal year end of 2014. The company's restricted cash of $3.3 million consists of cash equivalent used as collateral to secure short-term note payable. The company's working capital was$40 million as of the end of second quarter 2015, as compared to working capital of $34.8 million as of fiscal year end 2014. As of June 30, 2015, the company has total debt of $59.2 million, which include $32.1 million in short-term bank loans, $8 million in long-term loans from a related party, and $19.1 million in total capital lease obligations. Stockholders' equity attributable to SkyPeople was $185 million as of the end of second quarter 2015, as compared to $181 million as of fiscal year end 2014. For the first half of 2015, the company's operating activities generated net cash inflow of $36.7 million, as compared to a net cash inflow of 22.4 million from operating activities for the same period, 2014. Net cash used in investing activities were $1.9 million for the first half of 2015, which includes $2 million in additions to property, plant and equipment, as compared to net cash used in investing activities of $2.5 million, including $10 million in additions to property, plant and equipment for the same period of 2014. Cash flow provided by financing activities totaled $0.4 million for the first half of 2015, as compared to $6.4 million of net cash use in financing activities for the same period of 2014. We believe that protecting cash flows from operations, anticipated cash receipts, cash on hand, and trade credit will provide the necessary capital to meet the company's projected operating cash requirements for at least the next twelve months, which does not take into account any potential expenditures related to the potential expansion of our current production capacity. And now turning to our outlook; we are developing a fruit and vegetable industry chain and processing zone in Suizhong County, Liaoning Province, to include the construction and operation of the fruit juice production lines, among product storage and processing facilities. The estimated capital expenditure for the project is expected to be $4.6 million. The Company has made partial payment to acquire the land use right from the local government to purchase required and build facilities. The Company is in the process of building facilities and purchasing equipment. The company is also developing an orange processing and distribution center pursuant to its investment/service agreement with the Yidu Municipal People's Government in Hubei Province of China. Pursuant to the agreement, the Company will be responsible for an investment of approximately $48 million. The Yidu local government is in the process of demolition of buildings on the project land. The Company is actively working with various bodies of the local government to make preparations for the start of the project. We are also developing a kiwi processing facility and a trading center in Mei County, China, pursuant to the agreement with the local government. The company will be responsible for the construction and financing with an investment amount of approximately $72 million. As of the date obtained from 10-Q, the Company is still in the process of building facilities and purchasing equipment. Our new project are important strategic initiatives to capitalize upon the market opportunities presented by urbanization, growing national income in China, and growing customer preferences for our fruit juice products. They all enable us to leverage our management and operating activities, and utilize our existing marketing and distribution channel to create cost efficiencies. At this point, I would now like to open up the call to any questions there might be for the management team. Operator, please begin the Q&A session.

[Operator Instructions] Thank you. Our first question is coming from Matthew Larson with Morgan Stanley. Please go ahead with your question.

Hello, and thanks for taking my call. It looks like a good quarter to me. First question, why do you think the stock went down, number one. And also, in trying to understand your product mix, I see that apple concentrate was down dramatically to a very small amount, whereas other concentrates, pear for example, was up a lot. Why does this occur? Are you just -- are you emphasizing one over the other, or is some sort of seasonal issue that I don't understand?

Okay. Sorry; I didn't hear very clearly the first part of your first question. Would you please repeat your first question please then?

It looked like the quarter was good, certainly from an earnings point of view, cash flow. Revenues were not up a lot. I was just wondering if you had an opinion as to why the stock went down on the earnings announcement, but also just trying to understand your business, which is focusing on fruit juice sales, which I think is a good business probably to be in, but why did apple fruit juice concentrate sales pretty much disappear, whereas pear went up quite a bit, and I guess you're working on some kiwi? I mean what is the reason, the decision behind emphasizing one type of juice over another?

Okay, thank you so much for question. Let me first send your question to Mr. Yongke.

[Foreign language]

Thank you for question, first, and thank you for your comments to the second quarter financial results. As the CFO of the company, I think the entire company has been doing a good job in the second quarter. And we have, like we said previously, strong growth in terms of earnings, and our capital figures [indiscernible], and we have more cash than the year end, which means we have more resources to run our business. But after the second quarter 10-Q release, the share price did not go up a lot. I think it could be a couple of reasons behind. One of the reason was that on the same day we also filed [indiscernible] which gives the company an opportunity to raise potential $100 million financing. There might be some concerns from some of our investors that the company could in a very short period of time to issue a lot of shares which will cause a significant dilution to the shares that we already have. So that's just my estimation, just my guess. And what I would like to explain to our shareholders in this opportunity that you actually only give the company the opportunity, [indiscernible] to issue shares for the future financing. [Indiscernible] we will issue a lot of shares in a short period of time. At the moment, there is no significant financing. The company is discussing as we're discussing. And if there is, we will make proper announcements in accordance with the law. While we [indiscernible] we need to consider not only the timing, it is a very time consuming [indiscernible] and it is also very costly, because we need to pay our auditors, and also our attorneys. So we need to figure out a proper [ph] potential financing target, and put that into the action. We initially came up with $100 million [indiscernible] financing that kind of money in a very short period of time. And even though we'll do [indiscernible] financing, we will consider the potential dilution to our existing shareholders. So if there is any concern in this regard, everyone, please don't worry. There might be other reasons; there might be some people like you who is [indiscernible] of our various products segments. For example, like you said, our concentrated apple juice segment did not perform very well during the second quarter of 2015. From my perspective, I think first of all, the second quarter is not the peak season of the company, and it is not [indiscernible], and we did not have a lot of raw material to manufacture fruit juice concentrates and fruit juice beverages. So we had some fluctuations of the revenue and production. Concentrated apple juice is a product line that is highly competitive. There are a lot of huge concentrated apple juice manufactures here in China, basically [indiscernible] price. So historically this product line has the lower gross profit margins among other product lines. So this is not the focus of our future business. And right now almost 90% of our business revenue has been generated from fruit juice beverages. And that is the future of the company. So we feel a little bit disappointed with the apple concentrated juice segment. But also it is not a very important issue of the management. And I hope [indiscernible].

Yes, thank you. Appreciate the answer.

Thanks.

The next question is from the line of [indiscernible] Capital. Please go ahead with your question.

[Foreign language] English is, Oliver and Mr. Xue, when you think the Mei County facility will be operational?

[Foreign language]

Okay, I would like to translate [indiscernible]. The Mei County project is one of the most important capital investment projects of the company. And we realize the fact that it is slower than we expected. For the current year, the Chinese economy is facing a lot of pressure. And the Chinese government is executing a stronger environment control policies to all enterprises, including the company. And we are now working with the local government to apply necessary approval from the government. And once that is granted from the government, will impact the production of Mei County project, can start very quickly. And again I would like to remind you that we do now also keep a very specific date for estimation, but somehow we can give our investors or shareholders an idea, that where it could be, which is the best of our estimation in the 10-Q. In the 10-Q we said, through the work of 2014, the current year, through the work of 2015 that is the best guess of the management, but there could be changes, it could be [indiscernible] and you also could move it lower the impact of management is working as hard as it can to accelerate the program. Next question?

Yes. The next question is from the line of [indiscernible] Partners.

Hi, good morning guys, or good afternoon. Thanks for taking my call. Just maybe you can be a little more specific with respect to when the conditions will upon which you would issue shares under this recently filed S-3, because if you look at -- long-term shareholders haven't yet been rewarded despite the fact that the company operationally is doing quite well, and I think you hit it on the head when you said that the stock likely went down because people are worried about a dilutive offering. And I appreciate that you are trying to relate [ph] people concerns about that, but -- so even if the stock were twice the current price and offering at that level would still be relatively dilutive on a book value basis, so maybe you could describe to me what there is a scenario where you would consider issuing shares?

Okay. Let me firstly pass it to Mr. Yongke.

[Foreign language]

Okay. Let me first add [indiscernible] the reason we filed S-3 is to give them window of opportunity for the company to issue shares or issue any other financial instrument to refinance in the future, based on that we certainly mean that the company is considering issue a lot of shares at the current market price or somewhere around there in the very short period of time. It is only the preparation we made for future growth and so our main fundamental reason for the company to raise new finance is when the company needs new capital. So I think that investor do not worry too much about that. At the moment, we are not -- the Board of Directors are not discussing any potential share issuing financing opportunities from time to time, there were potential investors approaching the company who want to purchase company's share at above the price. We always said no to them because we want to protect our investors. There could be a future time though we want to issue shares to raise some new capital but there is no project that is now being discussed by the Board of Directors and if there is we will make proper announcement to alert our investors. Okay.

Okay. It's just you are profitable and you are generating cash, so it's just a -- that's I think was just surprise to the market that you could consider raising cash when you already have a lot.

Sure. And my point of view there is more about the cash flow status as you can see from our cash flow statement during the first half of 2015 our operating activities have been doing well. So we need to find how much cash we can generate from our operations in the future and how much cash that we need to invest or to open up new projects, whenever. So it is a very hard balance to maintain. And we do that to give the company an opportunity, and we don't want to take a lot of time and spend a lot of money by the time [indiscernible] we did it, and that's the way it happens.

Okay. I appreciate your answers. Thanks.

Thank you.

Thank you. I will turn the floor over to you to make some closing comments.

This is David Rudnick. On behalf of the entire SkyPeople Fruit Juice management team, we would like to thank all of your interest and participation on this call. This concludes SkyPeople Fruit Juices' second quarter 2015 earnings conference call. Thank you all very much.

Thank you. Bye-bye.

You may disconnect your lines at this time. Thank you for your participation.