Bon Natural Life Limited

Good day and welcome to the Bond Natural Life Fiscal Year 2022 Limited Earnings Conference Call. All participants will be in listen-only mode. For those on the phone, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your touchtone phone. To withdraw your question, please press star, then 2. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. For those on the webcast, you may submit questions throughout the event by typing in the submit a question box on your screen. Questions will be addressed after the formal presentation has ended. Please note this event is being recorded. I would now like to turn the conference over to Yiruzu, investor relations of the company. Please go ahead. Thank you, operators. Thank you all for joining us for FONS Physical Year 2022 Physical Results Conference Call. FONS has issued a press release announcing the Physical 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 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 read 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, Ms. Zheng Chaoli, CEO, Ms. Yingchun Xue, and CMO, Ms. Wenjun 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. Danny will then provide a detailed overview of our financial year 2022 financials, highlighting the financial performance of each product category.

First of all, I would like to briefly introduce our company's business and business model. BOA is a supplier of natural health and individual care industry. We purchase natural raw materials from farmers and suppliers. Through our advanced technology processing, we can make various high-value chemical raw materials. and is suitable for commercial or other uses. We have three types of products. The first type is spice raw materials. The second type is dietary supplements and solid materials. The third type is called biological raw materials. Spice raw materials are mainly used in spices, mouthwash, cleaning agents, or acupuncture agents and other products. Dietary supplements are used for doctors and doctors' solid materials, etc. bioactive raw materials are used in food preservatives and health care products. Our customers include some very well-known brands in China and Asia, such as Tongrui Tang, Jing Tai, Anti-Gel, Liang Mianzhi, and so on. At the same time, our customers also include some brands that support each other in Europe and the United States, such as Matsuchi.

Now turn to slide six. I'd like to briefly introduce our company for those who are new to our story. Lone Natural Life is a bio-ingredient solution provider in natural health and personal care industry. We store raw materials from farms. then process and break down the natural plant's international chemicals that can be used commercially for the above-mentioned application. 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, and et cetera. Health supplements are powdered drinks, prebiotics, probiotics, and et cetera. Bioactive food ingredients are used in food preservatives and health supplements as well. Our customers include well-known names in Asia, including Tongrentao, Liangmianzhen, Jingbran, and Angel East. Our clients also include some of the biggest names in the U.S. and Europe, such as International Flavors and Fragrances, Mars, Sunrise, Bridal, and ACS International. We don't think it's true.

Now, let's take a look at the seventh page. I will briefly introduce our production base and the entire production system of the corn factory. Currently, we have two production bases in Xi'an. The distance from our headquarters in Xi'an is basically a factory within 90 minutes. Currently, the main body of the corn factory is basically this wave. is expected to be completed in May this year. The first stage of the construction of the factory is mainly used to quickly expand the production capacity of raw spices and food materials to meet the current market and customer needs of our current customers. The second stage of the production line is mainly used to produce products such as natural raw materials and functional individual logistics. Now, turn to slide 7. I'd like to briefly discuss our manufacturing facilities and the upcoming urban plant.

We currently have two facilities in Xi'an, China, both located within 90 minutes drive from the company's headquarters. Regarding our third production facility, Yunmen 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 human plan 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, the 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 150% annualized growth potential in revenue. 下面的话是第八页,我将给大家介绍一下我们专有产品的开发地点。

After many years of hard work and continuous investment by our research team, we are very happy to be able to increase the health of all health products for our beverage health care series on the basis of traditional raw material business. First of all, we have received our first female personal care product, Yuchui's full-fledged solid-state固定丹. This product is completely natural, non-toxic, and harmful chemical additives or side effects. The product can quickly regulate the microbiological balance of the female reproductive system, and has anti-bacterial and anti-inflammatory effects. We expect Yuchui to bring in about $3 million in revenue in the next two years. Next, we would like to introduce the medical equipment of our Xilanhua Weiquan. So we want me to eat, eat, eat, eat, eat, eat, eat. We are looking forward to pushing these products into the market and giving our specialized products a market opportunity.

In this slide, I'd like to introduce the development progress of our proprietary products. Thanks to the tremendous and decades-long efforts of our R&D team, we are excited and proud to be able to add new and innovative health products to our new pharmaceutical line for our legacy compound business. We have received the initial purchase orders for our first female personal care product, Feather Pure. It is an all-natural product with no antibiotics, fragrance, or harmful chemical additives without harmful side effects. The product can regulate microbial balance of female reproductive system and can provide antibacterial and anti-inflammatory functions. We expect Feather Pure to bring approximately $3 million in revenue in the next two years. Secondly, we'd like to introduce our new broccoli-based probiotic powder drink. As our first proprietary product of the Kool-Thera's vegetable-based health supplement series, it will provide an additional growth driver for us. According to research, about 56% of the Chinese population are infected with H. pylori fluoride bacteria that could cause digestive diseases. Our new probiotic powder drink will potentially inhibit the proliferation of H. pylori bacteria and regulate the microbial balance of digestive systems. In addition to the powder drink, we are also expanding to develop other consumer products in our Crucibus vegetable-based series. We plan to introduce immune system boosters in soft gel capsules, digestive health boosters in soft-shell capsules, weight loss management products, and sleep aid products for the middle-aged and elderly. 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. Next, let's look at the ninth page.

We will introduce the company's growth strategy for the next year. First of all, we are expanding the production line. In terms of B2B raw materials, we will introduce new biotech technologies. In the next year, we will introduce two to three new high-quality raw material batches to expand the production line of the company and expand our sales in the large health market. to create a stronger competitiveness for the company. This is about our raw material business. Secondly, I would like to introduce our product line in terms of B2B health solution solutions. We will continue to surround the human body hygiene group, and develop and digest health, brain health, liver health, heart and brain health, and immune health as the basis of the large-scale series of new products. At present, some of our products have been tested and are about to be released. A small number have been released, including gastrointestinal health products, youth memory products, liver health products, immune health products, blood-sickness and anti-inflammatory products, and so on. This is about the first part of the product line-up. Secondly, I would like to introduce our capital market and globalized business. This is an introduction to our campaign strategy. First of all, in the capital market, we will actively use the acquisition business of the capital market. In the next year, we will carry out two to three acquisitions. These purchases will strengthen the company's strength in terms of the production of biotechnology and the expansion of sales network. This is related to the purchase business. The second is about our company's globalized business layout. We are a company with a global target market. After NASDAQ was launched, We will actively promote our more actively promote our global layout. We are in the global epidemic. Under the premise of basic elimination, we will actively seek in the United States, Japan, Europe and Southeast Asia market to carry out creative business layout to quickly expand our corresponding business. Our strategy is to establish a northeastern In slide nine.

I will provide an overview of our growth strategy for the next six months to one year. First, we're expecting to put more effort in product line inspections. In the following year, the company will introduce two to three new raw material categories to expand our sales in health market and gain more competitive advantages. In addition to that, the company will continue to focus on the regulation technology of human microorganisms. and developing these products are beneficial for digestive and immune health. At present, we have tested and will launch some products, including products helping gut health, sleeping and memory issues, liver health, and immune health. Next, in terms of capital markets and global operations, the company is expecting to carry out two to three mergers and acquisitions in the following year. and these acquisitions will improve our capabilities in biomanufacturing technology and sales networking expansion. And the company will continue to look for opportunity to expand our business operations and local raw material market on a global level, especially in United States, Japan, Europe, and Southeast Asia with the new COVID situation. The company's strategy is to establish localized business 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 Sunny, and she will work you through our financials.

Thank you, Mr. Hu. I'm Sunny. I will review the 2022 annual financials with you, 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 I discuss here are for this reporting period, the year ended September 30, 2022, unless I say otherwise. Additionally, any year-over-year comparison is to the September 30 of 2021. So, let's go over our 2022 year-ended financials. I'll begin with an overview of our consolidated results on slide 11. In the fiscal year of 2022, bonds generated approximately 29.9 million in revenue, up a 17.3% increase over the last year. These increases were primarily driven by the increase in the average selling price of all three product categories, as well as increase in 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%. As we raised our selling prices in response to the rising raw material costs and market change as affected by COVID-19 and shortage of principal raw material due to the abnormal weather. Although the selling price was raised, the sales volume of bioactive food ingredients and health supplemental powder drinks increased by 27.3% and 1% for the fiscal year of 2022. The cell volume of bioactive food ingredients increased from 121,000 kilograms to about 154,000 kilograms due to strong customer demand and our cell's efforts to promote cells of milk-facial extract, its benefit to protect liver and lower blood sugar. In addition, the sales volume of fragrance compounds decreased by 15.1%, mainly due to the shortage of raw material, which suffered abnormal white weather in the second half of 2021, along with disruption of logistics caused by COVID-19. At the same time, gross profit for the fiscal year of 2022 was approximately $9.4 million. increased by 32.5%, which is mainly driven by strong category growth from health supplemental powder drinks and bioactive food ingredients. Both sales volume and average selling price are moving in the right direction, partially offset by the supply chain impacted contribution from fragrance compounds. Government subsidies received in the form of a grant and recognized as other operating income totaled about $1.3 million and $450,000 in the fiscal year of 2022 and 2021, respectively. This is an example of continuing support from government to high-tech companies like Bond Natural Life. Net income in fiscal year of 2022 increased from 4.6 million to about 6.2 million, increased by 35.4%. Saluted earnings per share was $0.74 compared to $0.68 for the same period in 2021. In this slide, I will delve 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 is a rise in the raw material cost due to supply chain and pandemic challenges, with our advanced technologies and our ability to secure such supply, we are able to increase our average selling price and maintain our profitability in fragrance compounds. Next, our health supplements. Specifically, powder drink segment increased by 7.4%. and 6.7 million to about 7.1 million. The increase from health supplements was mainly due to volume growth and higher average selling price. Revenue from bioactive ingredients increased 48.5% compared to the same period of 2021, from 6.1 million to about 9.1 million. As I mentioned before, The increase in revenue from bioactive ingredients was primarily due to volume growth and higher average selling price. Overall, the increase in total sales revenue from union price increases in all three segments, as well as volume increase in bioactive ingredients and health supplemental powder drinks, offset the negative impact of supply chain shortage in fragrance compounds. we are pleased with the overall financial performance of our product category. Now, turning to slide 13, I'd like to discuss the regional breakdown of our sales and the dynamics that influence 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 the fiscal year of 2022. Overseas sales were approximately 1.2 million, representing about 3.9% of the total revenue. Due to COVID-19, global logistics has been disrupted. so we shifted our sales strategy by directing more marketing efforts to promote our products to large domestic enterprise customers rather than export sales to overseas customers. We believe that with the commissioning of human clients, we'll be able to accelerate the revenue growth in both domestic and international sectors to meet the increasing demands from our customers. Next, In slide 14, I'll go over the key subsequent events after fiscal year of 2022. On September 2022, the company has announced a delay of the commencement of human plant to May 2023. On January 2023, the company closed a previous offering with gross proceeds of 2.2 million, many to fund its new human 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. Mr. Hu, please go ahead.

Mr. Hu, please go ahead.

Thank you. Thank you for your participation in the board meeting of the BOA in 2022. Before I end today's introduction, I would like to thank our employees for their hard work and our loyal customers for their trust in us. We believe 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 will 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'll now open the call to your questions. Operator?

We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press Store then To. For those on the webcast, you may submit questions by typing in the Submit a Question box on your screen. At this time, we will pause momentarily to assemble our roster. And our first question comes from Emily, a private investor. Please go ahead. 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 reunion plans. I just want to know, do you expect it to complete in May this year, or there might be another delay? And also, how much production capability will the plant provide Is there any existing demand for such an increase, or do you have a corresponding plan to meet the increased production? Thanks.

Okay, thank you, Emily. Let me translate a question to the management. Mr. Hu, Mr. Li. Yes, Mr. Zhang. Mr. Zhang.

Mr. Zhang. Mr. Zhang. Mr. Zhang.

Mr. Zhang. Mr. Zhang. Our factory in Yumen has had some delays before. The main reason is that the pandemic has affected the staff and the supply chain. Currently, the company has announced that it will be able to complete the first period in May of this year. The first question is whether there will be a longer delay. Okay, let me introduce it briefly.

This is how it is. The first issue is that we plan to start production in May of this year, the first period of the corn factory. At present, there should be no delay. We plan to start production in May of this year. This is the first issue. The second issue is that the first period of the corn factory is about 50 tons, which is 50,000 kilograms, 50 tons, 50 MT. And then our biodegradable food raw materials, this water-soluble sugar, this production capacity is about 300 tons, 300 MT. It's like this. So our first phase is to say that we first have this pre-degenerative salt, this 50 tons, Emily, your answer comes from the chairman CEO, Mr. Richard Hu. So the management does not foresee any further delay, especially after

China is reopening after from the COVID-19 pandemic. So they feel pretty confident that the company will be able to complete construction and also ramping up production around May this year. In terms of production capacity, phase one is basically for fragrance compounds, and phase two is for bioactive ingredient food products. So phase one, as we mentioned, will come around May, which will bring additional capacity, approximately 30 metric tons of frequent compounds, which translates into about 200% in terms of production capacity increase. In terms of revenue, we can expect that will increase by about 150%. In terms of bioactive food ingredients products, which will come online in around May next year, the second phase, so that will bring additional 300 metric tons production capacity to the company.

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

Okay. Let me translate the question to Richard. Okay. Hello, Mr. Hu. Another problem is that investors have noticed that in the last year of 2022, our overseas sales have actually dropped. In the future of 2023, our company will have a factory. Is there any change in our overseas sales strategy and company expectations? Or are we still focusing on domestic customers and markets in the future? This is actually a very good question.

In the year of 2022, we reacted from the report that our overseas sales income was a relatively large decline. This is a two-sided factor. First of all, in the last few months of 2022, our main export destination, Shanghai, has experienced a major outflow of exports. The entire Shanghai port is in a state of stagnation. This has caused a very big decline in our overall exports. This is a basic objective. In addition, in 2022, we also have a corresponding trend in overseas sales. So these two together caused our sales revenue to react from the report in 2022. What do you mean by the second reason? Emily, so the answer comes from Richard Hu, the chairman and CEO. In terms of

The overseas sales declined significantly in fiscal year 2022. There's two reasons. One is in March, April, and May of 2022, there was a significant congestion at the port of Shanghai, which caused the company unable to deliver to the customer. So that's factor one. The second factor is that Due to the supply chain disruption globally, there's a huge shortage of raw material the company needed for fragrance compounds and also certain bioactive ingredients materials. So those were primary reasons that the company's overseas sales declined dramatically in the face of the year 2022. And looking forward, the company does not foresee any of these factors will play a role. So the company believes they will continue. The company will resume its export business, and the company does expect its 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 account receivables? And do you have any better provisions on that?

Okay, thank you. Let me translate. President Li, I have another question for you. We noticed that the company's revenue at the end of last year's fiscal year is still relatively high, about $600. I would like to understand why the company is so low and why it is so high. Secondly, has the company made any preparation for bad accounts? Maybe you can introduce it again. Of course, the investor didn't ask. I think you can introduce the current situation of the refund. Because from 930 to now, it's been a while. Okay, let me answer this question for everyone. We have a total period of three months for the customer's income account. The income account's account is within three months. OK. OK. Hey, Emily. So here's an answer from Mr. Lee, the company CFO. So the terms, the payment terms the company gave the customer is universal, three months or 90 days. So throughout last year, the company has not experienced any delinquent payments. So all the payments are according to the payment schedule. As of now, in January this year, the company has pretty much collected all the balance that was 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.

Yeah, thanks, Emily.

Once again, if you would like to ask a question, please press star, then 1. This concludes our question and answer session. I would like to turn the conference back over to Saini 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 would 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.