Positive Momentum into Q1 2019
TSX-V: HEMP
VANCOUVER, Dec. 21, 2018 /CNW/ - Hempco Food and Fiber Inc.
("Hempco" of the "Company") (TSX-V: HEMP) today announced its
results for fiscal year 2018, ended August
31, 2018.
Q4 2018 and Subsequent Operational and Strategic
Highlights
- Revenues: In the 4th quarter, revenues
continued to reflect the Company's exit from the negative margin
Korean market. In addition, revenues were affected short-term
by quality issues at the Company's Manitoba processing facility and the
transition of a US client. This was offset partially by positive
momentum in the Company's higher margin product offerings through
its consumer-packaged goods product lines PRAISE and PLANET HEMP.
While revenues for the quarter declined, the Company is seeing
positive effects of its strategy executing into Q1 2019, and
anticipates quarter-on-quarter growth. Additional momentum is
anticipated from the entry into new markets as Hempco concluded
discussions with importers that will enable entry into new markets,
such as Mexico and New Zealand.
- Capacity: During the quarter, the Company continued to
progress towards commissioning of its new Nisku facility to increase production
capacity, reduce costs and increase product quality. The new
facility is anticipated to commence operating in the coming
months. The new facility will enable Hempco to increase its product
portfolio to include bulk hemp products such as protein hulled hemp
seeds, animal hemp supplements, hurd and fiber, as well as enable
further portfolio expansion of the Company's higher margin product
lines PLANET HEMP and PRAISE.
- Diversification: The Company launched its new PLANET
HEMP SUPERFOOD product line in the 4th quarter with the
introduction of two new products.
- Sales Channel Development: The Company continued its
initiatives to develop new sales channels for its bulk, retail
product line PLANET HEMP and its animal food supplement line
PRAISE:
-
- Subsequent to the quarter, the Company signed agreements with
key health and wellness food distributors Jonluca (a Canadian
Business' Growth 500 company) and Satau, to extend market
coverage in Ontario and
Quebec respectively.
- Agreement signed with a New
Zealand importer with delivery of first shipment in Q1
2019.
- Shipments commenced with a Mexico importer for PLANET HEMP.
- The Company has a distribution agreement with Kane Vet, a
supplier to 1900 pet stores and veterinarian clinics throughout the
country. Momentum in this channel is encouraging with a growing
number of new listings.
- The Company secured new listings of the PLANET HEMP CBD oil
product line with the largest natural foods distributor in the UK,
and health food stores.
- New listings of PLANET HEMP SUPERFOOD product line were secured
in health food and specialty stores across Canada in Q1 2019.
- The Company's CPG e-commerce strategy commenced in 2018 with
product launches on Amazon.com and Well.ca., two of the most
heavily visited sales channels for natural health products with
promising signs of positive momentum.
- Aurora Partnership: Aurora now owns approximately 52.3%
of Hempco. Subsequent to the quarter, Aurora provided a loan in the
form of a convertible debenture to Hempco for working capital
purposes. To date a total of $3
million was provided, with a total facility size of
$5 million being negotiated.
- Management Change: During and subsequent to the
quarter, the Company strengthened its management team with
additions in operations, sales and finance. The additions provide
further leadership and band width to drive growth going
forward.
Management Commentary
"Fiscal 2018 was a year of transition for us, in which we
diversified into new product lines and geographic areas, while
dealing with the anticipated challenges from our exit of the
negative margin Korean market," said Diane
Jang, CEO. "Execution is now focused on our five-prong
growth strategy, which has started to deliver positive momentum.
With our new Nisku facility
becoming fully operational in the coming months, we anticipate
achieving Global Food Safety Initiative (GFSI) certification, while
enabling us to broaden our product offering into new markets and
accelerate growth through increased production capacity. With the
recent US Farm Bill, this will strengthen Hempco's position within
North America for whole plant
utilization. These fundamental developments during our fiscal 2018,
we believe, will further strengthen our position and enable us to
pursue accelerated growth for Fiscal 2019."
Financial Review
A more detailed discussion of financial results is provided in
the Company's Management Discussion and Analysis, filed on
www.sedar.com
Revenues for the year ended August 31,
2018, were $2,180,641 compared
to $6,548,507 for the year ended
August 31, 2017. Exit from the
Korean market, transition of a US customer, combined with
product quality issues at the Company's copacker's facility
impacted 2018 sales, offset partially by positive momentum from
Hempco's product and geographic diversification strategy.
Revenues in Q1 2019 have begun to recover. The Company
recently signed an agreement with one of New Zealand's largest hemp
importers/distributors. The PLANET HEMP SUPERFOOD product line was
newly launched and was introduced in health food and specialty
stores across Canada as of Q1
2019. The Company signed agreements with key health and wellness
food distributors Jonluca (a Canadian Business' Growth 500
company) and Satau, to extend market coverage in Ontario and Quebec respectively. Sales of PRAISE products
for pets has also been encouraging within Canada and the USA.
For the year ended August 31,
2018, gross margins, excluding the one-time product
write-offs, improved to 18% of sales over the previous year (2017 –
15%). Inventory write-downs of $528,947 in 2018 related mostly to residual
inventories from the Korean contract, which did not meet customer
shelf-life requirements, and legacy animal and other
products. The Nisku plant is expected to improve
quality control and product availability.
Operating expenses increased by $799,213 to $4,349,662 in 2018 from $3,550,449 in 2017. Rent increased by
$615,946 mainly due to the
Nisku rent, which commenced in
February 2017. Staff and consultant expenses increased by
$342,400 as additional staff were
required to support and execute the strategic initiatives in the
Company. Bad Debt increased by $88,915 in 2018, to $119,301, mostly through the bankruptcy of a
significant US distributor. Sales and marketing expense
was reduced by $119,987 in 2018 to
$292,566, as compared to $412,553 in 2017, mostly due to a decrease in
advertising. Investor relations and regulatory expense in 2018
decreased by $84,884 to $121,175 from $206,059 in 2017, as contracts with IR and
marketing service providers expired April
2017 and were not renewed.
Outlook
Hempco continued executing on its strategy to reposition the
Company in the three months ended August 31,
2018, by focusing on a number of key strategic initiatives,
including:
|
1)
|
Building new global
markets for Canadian bulk hemp products and Planet Hemp Superfood
and Praise. Management anticipates further expansion in
Canada, New Zealand, UK, USA and other geographic markets. The
completion of the new Nisku facility will further accelerate
revenue development, secure product sourcing, reduce costs and
improve quality issues experienced in 2018. With the Company's
omni-channel goals, its e-commerce strategy commenced in 2018 with
product launches on Amazon.com and Well.ca, two of the most heavily
visited sales channels for natural health products. 2019 will
see the launch of e-commerce on the Company's own re-branded
consumer websites.
|
|
|
|
2)
|
Focusing on
innovations to further expand hemp-based products into new consumer
categories and market segments. New products are planned well
into 2020 under the brands, Planet Hemp Superfood, Praise, Planet
Hemp, and Hempco.
|
|
|
|
3)
|
Developing tri-crop
opportunities for hemp-based foods, fiber and nutraceuticals to
maximize revenue. The Company's new hemp fiber and hurd
processing capacity is expected to bring in new revenue streams for
the Company. The Nisku facility will extract fibers from the hemp
"stalk" for sale to business-to-businesses. The potential addition
of fiber, and hurd processing would move the Company toward its
vision of whole plant utilization, to the benefit of consumers,
farmers and shareholders.
|
|
|
|
One of the biggest
recent developments for the hemp market is the anticipated ability
under the new Cannabis Act, to start processing hemp for the
extraction of CBD oils. The Act became law in Canada on October 17,
2018. The Company estimates it will be able to source in excess of
5 million pounds of chafe, flowers and leaves 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.
|
|
|
|
4)
|
Championing Canadian
hemp as a healthy ingredient for food manufacturers through
marketing and other promotional activities, including key trade
shows, to increase visibility of Canadian hemp and the Company's
brands. The Company has increased its profile and exposure at trade
events generating interest from baked-goods manufacturers,
meat-substitute companies, to animal
manufacturers.
|
|
|
|
5)
|
Taking on an active
and essential leadership role with the Canadian Hemp Trade Alliance
(CHTA) to help drive the CHTA's objectives in promoting
Canadian-grown hemp and derivative products, while working closely
with the government on research, regulations, and international
trade efforts and missions. With Hempco's CEO being elected
to the CHTA's Board on November 19, 2018, she will chair the newly
formed, Market Development Committee. The committee's objective is
to market and grow market share of the Canadian Hemp industry
globally.
|
Additionally, 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 will contribute to the Company`s ability to
accelerate its commercial development into new markets and revenue
streams.
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".
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.