Bon Natural Life Ltd Q4 FY2022 Earnings Call

Good day and welcome to the Bon Natural Life Fiscal Year 2022 Limited Earnings Conference Call. All participants will be in listen-only mode. Please note this event is being recorded. I would now like to turn the conference over to Yu Rizu, Investor Relations of the Company. Please go ahead.

Thank you, operator. Thank you all for joining us for Bon's fiscal year 2022 fiscal results conference call. Bon has issued a press release announcing the fiscal year 2022 financial results earlier this morning. A copy of the release and the financial reports can be found on sec.gov. Please note that this call is being recorded live and it will be available for replay. I ask that you please take a moment to review our forward-looking statements. During the call, we will be making forward-looking statements about the company's performance and business outlook. These statements are based on how we see things today and contain elements of uncertainty. For additional information concerning the factors that may cause results that are materially different from our forward-looking statements, please refer to our cautionary statement and risk factors stated in today's press release. Joining me today on the call are the Chairman and CEO of the Company, Mr. Richard Hu; CFO, Mr. Zhenchao Li; COO, Ms. Yingchun Xue; and CMO, Ms. Wenjuan Chen. I will now turn the call over to our Chairman and CEO, Mr. Hu, who will be speaking in Chinese, and I will translate his opening remarks into English. Mr. Hu, please go ahead.

Thank you everyone for joining us today. I will begin today's call by providing an overview of our business performance during the fiscal year 2022. Li will then provide a detailed overview of our financial year 2022 financials highlighting the financial performance of each product category. Now turn to slides, I'd like to briefly introduce our company for those who are new to our story. Bon Natural Life is a bio-ingredient solution provider in the natural health and personal care industry. We source raw materials from farms, then process and break down the natural plants into natural chemicals that can be used commercially for their abovementioned applications. We have three product categories: fragrance compounds, health supplements, and bioactive food ingredients. Fragrance compounds are used in fragrances that go into consumer fragrance, oral care, detergents, etc. Health supplements are powdery drinks, prebiotics, probiotics, etc. Bioactive food ingredients are used in food preservatives and health supplements as well. Our customers include well-known names in Asia including Tong Ren Tang, Liangmianzhen, Jing Brand, and Angel Yeast. Our clients also include some of the biggest names in the U.S. and Europe, such as International Flavors & Fragrances, Mars, Symrise, Fridal, and ACS International. Now turning to slide 7, I would like to briefly discuss our manufacturing facilities. We currently have two facilities in Xi'an, China, both located within a 90-minute drive from the company headquarters. Regarding our third production facility, Yumen Plant, the building structure of the first phase facility has been completed as scheduled. The first phase construction work is estimated to be completed in May this year. For the first phase, the Yumen Plant will increase the production capability of the fragrance compounds and bioactive food ingredients to meet the existing market and customer demand. For the second phase of expansion, production will be used for the company's new proprietary products including natural pre-audit and functional personal care products. The new construction is expected to increase our production capability of fragrance compounds and bioactive food ingredients by 200%, representing a 130% annualized growth potential in revenue. In this light, I would like to introduce the development of our proprietary products. Thanks to the tremendous and decade-long efforts of our R&D team, we are excited and proud to be able to add new and innovative health products to our nutraceutical line for our legacy compound business. We have received the initial purchase order for our first female personal care product, FeatherPure. It is an all-natural product with no antibiotics, fragrance, or harmful chemical additives without harmful side effects. The product can regulate the microbial balance of the female reproductive system and will provide antibacterial and anti-inflammatory functions. We expect FeatherPure to bring approximately $3 million in revenue in the next two years. Secondly, we would like to introduce our new broccoli-based probiotic powdery drink as our first proprietary product in the cruciferous vegetable-based health supplement series. It will provide an additional growth driver for us. According to the research, about 56% of the Chinese population is infected by H. pylori, a bacteria that can cause digestive disease. Our new probiotic powdery drink could potentially inhibit the proliferation of H. pylori bacteria and regulate the microbial balance of the digestive system. In addition to the powdery drink, we also expect to develop other consumer products in our cruciferous vegetable-based series. We plan to introduce immune system boosters in soft gel capsules, digestive health boosters in soft gel capsules, weight loss management products, and sleep aid products for middle-aged and elderly customers. We look forward to bringing our products to the market, and we are optimistic about the opportunity and revenue potential of our proprietary consumer products. In slide 9, I will provide an overview of our growth strategies for the next six months to one year. First, we are expecting to put more effort into product line expansion. In the following year, the company will introduce two to three new raw material categories to expand our sales in-house market and gain more competitive advantages. Additionally, the company will continue to focus on the regulation technology of human microorganisms and develop new products that are beneficial for digestive and immune health. At present, we have tested and will launch some products, including those helping with gastroenteritis, sleep, memory issues, liver health, and immune health. Next, in terms of capital markets and global operations, the company is expected to carry out two to three mergers and acquisitions in the following year. These acquisitions will improve our capabilities in bio-manufacturing technology and sales networking expansion. The company will continue to look for opportunities to expand our business operations and local raw material market on a global level, especially in the United States, Japan, Europe, and Southeast Asia. The company's strategy is to establish localized businesses to rapidly expand the raw material business market. Meanwhile, the company will also actively engage in Global Health Solutions, especially in the U.S. and China. With that, I will now turn the call over to Sandy, and she will walk you through our financials. Thank you Mr. Hu. I'm reviewing the 2022 earnings financials, and our CFO Mr. Li will be available for the Q&A session if you have any questions regarding the financials. Before I reveal the numbers, let me remind you that all figures discussed are for this reporting period, the year ended September 30, 2022 unless I state otherwise. Additionally, any year-over-year comparisons are to the September 30 of 2021. So let's go over our 2022 year-end financials. I'll begin with an overview of our consolidated results on slide 11. In the fiscal year of 2022, Bon generated approximately $29.9 million in revenue, a 17.3% increase over last year. These increases were primarily driven by the rise in average selling prices of all three product categories, as well as an increase in the sales volume of bioactive food ingredients. The selling price of fragrance compounds, powder drinks, and bioactive food ingredients increased by 27.5%, 7%, and 17.4% respectively, as we raised our selling prices in response to the rising raw material costs, changes in the market caused by COVID-19, and the shortage of raw materials due to abnormal weather. Although the selling prices were raised, the sales volume of bioactive food ingredients and health supplement powder drinks increased by 27.3% and 1% for the fiscal year of 2022. The sales volume of bioactive food ingredients increased from 121,000 kilograms to about 154,000 kilograms due to strong customer demand and our sales efforts to promote the sales of milk thistle extract, which benefits liver protection and blood sugar reduction. In addition, the sales volume of fragrance compounds decreased by 15.1% primarily due to the shortage of raw materials, which faced normal wet weather in the second half of 2021, along with disruptions in logistics caused by COVID-19. At the same time, gross profit for the fiscal year of 2022 was approximately $9.4 million, an increase of 32.5%. This was mainly driven by strong category growth from health supplement powder drinks and bioactive food ingredients. Both sales volume and average selling prices are moving in the right direction, partially offset by the supply chain impact from fragrance compounds. Government subsidies received in the form of grants and recognized as other operating income totaled about $1.3 million in the fiscal year of 2022, compared to $450,000 in 2021. This is an example of the continuing support from the government to high-tech companies like Bon Natural Life. Net income in fiscal year 2022 increased from $4.6 million to about $6.2 million, an increase of 35.4%. Diluted earnings per share was $0.74 compared to $0.68 for the same period in 2021. In this slide, I will dive deeper into the financial performance of each product category. Beginning with fragrance compounds, revenue generated from fragrance compounds increased by 7.6% from $12.7 million to about $13.7 million. As I mentioned previously, the revenue growth of fragrance compounds was primarily driven by the average order size and the average selling price of our products. Although there's a rise in raw material costs due to supply chain and pandemic challenges, with our advanced technology and ability to secure supply, we have been able to increase our average selling price and maintain profitability in fragrance compounds. Next, our health supplements, specifically the powder drink segment increased by 7.4% from $6.7 million to about $7.1 million. The increase from health supplements was mainly due to volume growth and higher average selling prices. Revenue from bioactive ingredients increased 38.5% compared to the same period of 2021, rising from $6.1 million to about $9.1 million. As I mentioned before, the increase in revenues from bioactive ingredients was primarily due to volume growth and higher average selling prices. Overall, the increase in total sales revenue from unit price increases in all three segments, as well as volume increases in bioactive ingredients and health supplement powder drinks, offset the negative impacts of supply chain shortages in fragrance compounds, and we are pleased with the overall financial performance of our product categories. Now turning to slide 13, I would like to discuss the regional breakdown of our sales and the dynamics that influenced our results. Despite the global supply chain challenges in 2022, revenue generated from domestic China was $28.8 million, achieving a 21.3% increase in sales, which represents approximately 96.1% of our total revenue for fiscal year 2022. Overseas sales were approximately $1.2 million representing about 3.9% of total revenue. Due to COVID-19, global logistics have been disrupted, so we shifted our sales strategy by directing more marketing efforts to promote our products to large domestic enterprise customers rather than completing exports to overseas customers. We believe that with the commissioning of Yumen Plant, we will be able to accelerate the revenue growth in both domestic and international sectors to meet the increasing demand from our customers. Next, in slide 14, I will go over the key subsequent events after fiscal year 2022. In September 2022, the company announced the delay of the commencement of Yumen Plant to May 2023. In January 2023, the company closed the previous offering with gross proceeds of $2.2 million, mainly to fund its new Yumen plant and working capital for the new production facility. And now I'll turn the call over to Mr. Hu for closing remarks. And then we'll start the Q&A session.

Thanks, everyone for joining us today. Before I wrap up today's presentation, I would like to first recognize our employees for their efforts and thank our loyal customers for their trust in us. We are confident that our R&D capability, business model and strategy would enable us to gain more market share and maintain our growth momentum. With that, before we open to the call to your questions, I would like to note that for any questions directed to management in China, we’ll translate both their questions and their answers. If you want to ask your questions in Chinese, please also ask in English for the benefit of listeners. Please also note that we'll only be able to respond to questions about our financial and operating results. With that, we will now open the call to questions.

Our first question comes from Emily, a private investor. Please proceed.

Hi, thanks for taking my questions. I think my first question is for the CFO, Richard. I saw your press release that the company has postponed the completion of the Yumen plant. I just want to know do you expect it to be complete in May this year or might there be another delay? And also, what production capability will the plant provide? Is there any existing demand for such increase, or do you have a plan to meet the increased production? Thanks.

Let me translate your question to the management.

The management does not foresee any further delay, especially after China is reopening from the COVID-19 pandemic. So, they feel pretty confident that the company will be able to complete construction and ramp up production around May this year. In terms of production capacity, phase one is basically for fragrance compounds, and phase two will be for bioactive ingredient food products. So, phase one, as we mentioned, will come alive around May, bringing additional capacity of approximately 30 metric tons of fragrance compounds, which translates into about a 200% production capacity increase. In terms of revenue, the company expects that there will be an increase of about 150%. For bioactive ingredients, which will come online in around May next year, the second phase will bring an additional 300 metric tons production capacity to the company.

All right, okay, thanks. I think my second question is also for Richard, the CEO. I noticed that your company has overseas expansion plans. But can you explain why the earnings and sales ratio of overseas sales declined in 2022 compared to 2021? Will you adjust the plan for the future or are you going to keep this plan?

I noticed that your company has overseas expansion plans. Can you explain why the earnings and sales ratio of overseas sales declined in 2022 compared to 2021? Will you adjust the plan for the future or are you going to keep this plan?

In terms of the overseas sales decline significantly in fiscal year 2022, there are two reasons. One is that in March, April, and May of 2022, there was significant congestion at the port of Shanghai, which caused the company to be unable to deliver to customers. The second factor is due to global supply chain disruptions leading to a severe shortage of raw materials commonly needed for fragrance compounds and certain bioactive food ingredients. Those were the primary reasons for the significant decline in overseas sales for fiscal year 2022. Looking forward, the company does not foresee any of these factors playing a role. We believe that the company will resume its overseas business, and we expect overseas sales will pick up in fiscal year 2023.

Okay, thanks. So one more question. My last question is for the CFO. I saw that the company's accounts receivable are over $6 million and increased by $1.3 million in 2022. Can you explain why the company has such a high level of accounts receivable, and do we have any better provisions on that?

I appreciate your question. The company's accounts receivable currently stand at over $6 million, having risen by $1.3 million in 2022. We recognize that this level is significant, and we are actively managing it. We are looking at various factors contributing to this increase, including changes in our sales dynamics and customer payment patterns. We are committed to improving our provisions related to accounts receivable and will continue to monitor this closely.

The payment terms the company gives customers is universal, three months or 90 days. Throughout last year, the company has not experienced any delinquent payments, so all payments are according to the payment schedule. As of now, in January this year, the company has collected almost all the balances that were reflected in the balance sheet as of September 30, 2022. So, the company does not have any bad debt provision.

Okay, okay. All right. Thanks. I think I don't have any further questions on that. Thank you.

Sure. Thank you, Emily. This concludes our question-and-answer session. I would like to turn the conference back over to Syni for any closing remarks. Thank you, operator. On behalf of all, we want to thank you for your interest and participation in this call. If you'd like to speak with us further, please contact either Sophie or Maggie. Some contact information is listed at the end of the press release. Thank you. Operator, back to you. The conference has now concluded. Thank you for attending today’s presentation. And you may now disconnect.