Positioning the company for accelerated
growth
VANCOUVER, Jan. 29, 2018 /CNW/ - Hempco Food and Fiber
Inc. ("Hempco" of the "Company") (TSX-V: HEMP) today announced its
results for the first quarter fiscal 2018 period ended November 30, 2017.
Q1 2018 and Subsequent Operational and Strategic
Highlights
- Margin and Revenues: Despite a short-term decline in
revenues due to the Company's temporary exit from negative margin
Korean market, gross margin levels were maintained.
-
- Encouraging growth in Canadian and European markets: new
product launches and sales initiatives have started to create
positive revenue momentum in Europe and Canada, resulting in a near tripling of
revenues from these regions.
- Production issues at the Company's Manitoba facility resulted in one large US
customer temporarily seeking third party supply, resulting in
reduced US revenues.
- Adjusted for the temporary exit from the Korean market,
revenues were up 5.8%.
- Capacity: During the quarter, the Company continued the
development of its new hemp seed processing facility in
Nisku. Once operational, the
Company anticipated the new facility to have a capacity of 240,000
lbs. per month. Processing at the new facility is anticipated to
commence in April 2018.
- Sales Channel Development: The Company continued its
initiatives to develop new sales channels for its retail product
line PLANET HEMP, predominantly in Canada and the UK. As indicated above, while
still at an early stage, encouraging revenue development has been
achieved in these markets.
- Diversification: The Company is working on a number of
product innovations that it anticipates launching in the coming
quarters.
- Aurora Partnership: The strategic investment by Aurora
has capitalized Hempco for the completion of its Nisku facility, as well as provide funds for
organizational development and innovations to develop new product
lines, increase the sales and marketing team, as well as launch
marketing campaigns.
- Balance Sheet Strengthened: A $5.6 million inflow of funds relating to the
Aurora financing and the exercise of warrants and options,
partially offset by cash flows used for operations, resulted in a
$4.4 million increase in total
assets.
- Management Change: Effective December 11, 2017, Diane
Jang was appointed as CEO, succeeding Charles Holmes, who continues to serve the
Company as its President.
- Strengthened Board: Steve
Dobler, President of Aurora Cannabis, and Allan Cleiren, COO of Aurora Cannabis, were
appointed to Hempco's Board of Directors.
Management Commentary
"During the first quarter of fiscal 2018, Hempco started to
generate positive momentum from new initiatives launched towards
the end of fiscal 2017, in particular in the Canadian and European
markets, while revenues were impacted by our temporary exit from
the negative margin Korean market," said Diane Jang, CEO. "Hempco is in a transitory
phase that we are executing on with new management, a new strategy,
fueled by anticipated developments in the regulatory environment
that will enable us to achieve whole-plant utilization. The
financial, operational and strategic support from our partner
Aurora Cannabis will enable Hempco to accelerate and amplify these
initiatives. Going forward we continue to see a number of major
opportunities in the health food, animal food supplements, consumer
packaged goods, and CBD markets that we intend to capitalize on
through product and geographic diversification, on which we will
report in more detail in the coming quarters."
Financial Review
A more detailed discussion of financial results is provided in
the Company's Management Discussion and Analysis, filed on
www.sedar.com
Net loss for the 3-month period ended November 30, 2017
came in at $0.7 million, a
$0.3 million increase due to lower
gross profit resulting from the Company`s temporary exit from the
Korean market. Additionally, lease costs related to the Company`s
new Nisku facility were expensed
during the pre-production stage, and other costs related to growth
initiatives were incurred. Gross profit margin remained stable at
21%.
The negative impact from the Korea exit was offset partially
by:
- Reduced consulting and investor relations fees as going public
contracts in 2016 were terminated and the expenses did not occur in
2017.
- Reduced non-cash, stock-based compensation of $0.1 million, mostly associated with options and
warrants granted during the go-public transaction in 2016.
Revenues
Revenues of $0.5 million for the
quarter ended November 30, 2017
decreased by $2.1 million,
attributable to the Company's temporary exit from the Korean market
and one major US customer seeking alternative third-party supply,
offset partially by strong early growth in the Company's Canadian
and European markets.
Hempco's product improvement initiatives, launched in 2017, will
enable the Company to begin marketing its new SAFE quality
assurance program once its Nisku
facility is up and running, which management anticipates in
April 2018, enabling the pursuit of
larger customers to generate accelerated growth.
Korean Contracts
The Company signed a contract with a Korean company for the
supply of $9M of product over one
year of hulled hemp seed nut. However, as demand growth for hemp
nut in Korea slowed during 2017, the market was impacted by a large
influx of inferior quality, but low-cost product, resulting in loss
of market share, and the contract was terminated before being
serviced in full. It is anticipated that there will be a
rebalancing in the Korean market with premium hemp product
regaining market share, upon which management anticipates that the
market will become viable again for Hempco to recommence sales to
Korea.
The Company is working to diversify its revenue base through
diversification and the entry of new geographic markets, new
product development, and using new sales channels in existing
markets.
Cost of Sales and Gross Profit
Cost of sales for the three-month period ended November 30, 2017 came in at $0.4 million, resulting in a gross profit of
$0.1 million, as compared to
$2.0 million for the same period in
the prior year, with gross profit recorded of $0.6 million.
Increased production costs at the Manitoba facility also contributed to an
overall increase in costs in 2017. The Company anticipates that its
investments in quality control on raw materials and the
commencement of operations at its new Nisku facility will contribute to an
improvement in gross profit margins.
Expenses
A strong focus on cost control and a reduction in certain
business-volume related costs resulted in operating expenses
decreasing by $0.2 million, as
compared to $0.8 million for the same
quarter last year. Contracts related to investor relations and
corporate development were not renewed. However, lease and
personnel monitoring costs related to Nisku resulted in an increased contribution to
selling, general and administrative expenses, as compared to the
November 2016 quarter.
Outlook
During the three-month period ended November 30, 2017, Hempco continued executing on
its strategy to reposition the Company, focused on three key
initiatives:
- Become a major supplier to the retail market of a
well-diversified portfolio of health-related products through its
premium brand PLANET HEMP, as well as to the animal feed supplement
market through its newly launched brand PRAISE
- Expand its bulk wholesale business through the development of a
new facility in Nisku,
Alberta
- Become a supplier of CBD-based raw material upon the
introduction of the new Cannabis Act, which currently is going
through the Canadian Senate
While the short-term revenue of the Company's temporary exit
from the Korean market has impacted revenue development,
initiatives to expand sales of bulk hemp products into other
geographical markets are expected to offset this in the later part
of 2018. Sales of bulk hemp-based supplements for animals,
newly branded under the name Praise, commenced in late 2017 and are
anticipated to become a material contributor to growth in 2018.
The Planet Hemp CPG brand is growing steadily in Canada since its launch in fiscal 2017, with
the product line currently carried in over 70 retail stores.
Further retail expansion and new product innovations are expected
in 2018, to be showcased at the Canadian Health Food Association
Show-West in February, targeting natural/specialty food and grocery
retailers. Implementation of the Company's CPG e-commerce strategy
will also commence in 2018.
The Company continues to work on the completion of its new hemp
hurd processing capacity. Once operational, this facility
will extract fibers from the hemp "stalk" for sale into a ready
market. Hurd processing is anticipated to provide an
additional revenue stream for both the Company and the farmers
Hempco deals with.
One of the biggest recent developments for the hemp market is
the anticipated ability under the new Cannabis Act, expected to be
implanted in the summer of 2018, to start processing hemp for the
extraction of CBD oils. The Company estimates it will be able to
source in excess of 5 million pounds of chafe for potential sale
through its farmer contacts, which would benefit the Company, as
well as hemp farmers and the Company`s partners, Aurora and
Aurora`s extraction partner Radient Technologies.
The partnership with Aurora provides Hempco with a highly
visible partner. Leveraging of Aurora`s expanding infrastructure
and growing constellation of trusted partners, management expects
it will contribute to the Company`s ability to accelerate its
commercial development into new markets and revenue streams.
The potential addition of hurd and chafe processing would move
the Company toward its vision of whole plant utilization, to the
benefit of consumers, farmers and shareholders.
About Hempco
For more than 12 years Hempco has been a trusted and respected
pioneer, innovator and provider of premier hemp seed foods. Hempco
is committed to developing hemp foods, hemp fiber and hemp
nutraceuticals, a "tri-crop" opportunity for producers and
processors. Hempco is expanding its processing ability to meet
global demands in a 56,000sq. ft. facility located at Nisku, Alberta. Hempco's common shares
trade on the TSX Venture Exchange under the symbol "HEMP". Hempco®
has grown its business significantly and is generating value and
profits for shareholders.
On behalf of the Board of Directors
Diane Jang
Chief Executive Officer
+1.604.431.8787
This news release includes statements containing certain
"forward-looking information" within the meaning of applicable
securities law ("forward-looking statements"). Forward-looking
statements are frequently characterized by words such as "plan",
"continue", "expect", "project", "intend", "believe", "anticipate",
"estimate", "may", "will", "potential", "proposed" and other
similar words, or statements that certain events or conditions
"may" or "will" occur. These statements are only predictions.
Various assumptions were used in drawing the conclusions or making
the projections contained in the forward-looking statements
throughout this news release. Forward-looking statements are based
on the opinions and estimates of management at the date the
statements are made, and are subject to a variety of risks and
uncertainties and other factors that could cause actual events or
results to differ materially from those projected in the
forward-looking statements. Hempco is under no obligation, and
expressly disclaims any intention or obligation, to update or
revise any forward-looking statements, whether as a result of new
information, future events or otherwise, except as expressly
required by applicable law.
Neither TSX-V, nor its Regulation Services Provider (as that
term is defined in the policies of TSX Venture Exchange) accept
responsibility for the adequacy or accuracy of this
release.
SOURCE Hempco Food and Fiber Inc.