Hempco Reports Fiscal 2018 Q4 and Full Year Results

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 4^th 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 4^th 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.

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