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With operations in China,
Western-educated management, and state-of-the-art technology, HQ Sustainable Maritime
Industries, Inc. aims to become the global leader in zero-toxin aquaculture, a huge and
growing market where demand outpaces supply
Sustainable
Maritime Industries, Inc.
Aquaculture
(HQSM-OTC: BB)
HQ Sustainable Maritime Industries, Inc.
1511 Third Avenue
Suite 788
Seattle, Washington 98101
Phone: 917-291-3679
Norbert Sporns
Director, Chief Executive Officer
and President
Interview conducted by:
Lynn Fosse, Senior Editor
CEOCFOinterviews.com
December 1, 2005
BIO:
Norbert Sporns, Director, Chief Executive Officer and President
Norbert Sporns, age 50, is one of the founders of HQSM, and is a director, chief executive
officer and president. He has extensive experience in project development and investment
consultancy. He graduated from the University of British Columbia, Canada, majoring in
Philosophy. He also holds a Bachelor of Civil Law degree and a Bachelor of English Common
Law degree from McGill University and a Certificate of Tax Law, a Certificate in
Condominium Law and a Diploma of Notarial Law from the University of Montreal. Mr. Sporns
joined HQSM in 1997.
Company Profile: HQ Sustainable Maritime Industries Inc. is a
leader in zero-toxin integrated aquaculture and aquatic product processing, with
operations based in the environmentally pristine island province of Hainan, in the South
China Sea, and company headquarters in Seattle, Wash., USA. HQ's activities include using
renewable ocean resources, practicing cooperative sustainable aquaculture, using
nutraceutically enriched feeds and conducting fish processing and sales. Its variety of
farmed and ocean-harvested products – ranging from tilapia and shrimp to squid and
red snapper – are sold around the world. The Company holds HACCP certification from
the U.S. FDA and the EU Code assignment of quality, permitting its products to be sold in
these international markets. It has recently acquired a nutraceutical and health products
company, which is HACCP certified and produces and sells products subject to stringent
laboratory tests certified by the China Ministry of Health. This plant produces
nutraceuticals, which enrich feed used by HQ's cooperative aquaculture operations. In
addition to offices in Seattle and in Haikou, Hainan, HQ has offices in Montreal, Hong
Kong, Beijing, and Shanghai. (http://www.hqfish.com).
CEOCFOinterviews: Mr. Sporns, please tell us where you are
located and what advantages that area offers HQ Sustainable Maritime?
Mr. Sporns: “Our aquaculture operations are located on Hainan
Island, a province of China located in the tropical South China Sea – at about the
same latitude as Hawaii. The advantages of this location are several. First, Hainan’s
environment is completely free of pollutants from industry, and therefore it’s
ideally suited for maintaining the zero-toxin fish farming operations that we have there.
Second, with year-round warm temperatures, it’s the only part of China where
sashimi-grade tilapia can be raised 365 days a year. Third, Hainan province is designated
by the Chinese government as a special economic zone, and it offers a deep-sea duty-free
port, all of which greatly benefits our business. In addition, the lower wage scale in China
lets us operate at a cost advantage over international competitors, while still providing
our workers with good conditions and good pay. With these advantages, we are focused on
producing the highest quality aquatic products possible for the international markets that
we serve and becoming the world market leader in zero-toxin aquaculture.”
CEOCFO: Where are you
today with the business?
Mr. Sporns: “The business has grown incredibly from our
initial opening in 2000. Today we are China’s leading producer of quality
tilapia fish exports to the U.S., a market that is expanding rapidly. We command 10
percent of this market today, and we also export to Australia, South Korea, Japan and
other Asian countries. What we’ve done is build a vertically integrated business that
gives us control over the quality of all aspects of the process, so that we are certain to
meet or exceed all international standards for aquatic products. When we started, we
obtained technical transfer support from the Canadian International Development Agency
(CIDA), which helped us acquire state-of-the-art technologies for aquaculture, ocean
harvesting, and aquatic product processing. We have cooperative supply agreements with a
highly select group of local farmers of tilapia and shrimp, which gives us control over
quality without having to shoulder the cost of direct ownership. We have HACCP
certification from the U.S. Department of Agriculture and EU Code assignment of quality,
which permit us to sell in both of these large and demanding markets.
We became a U.S. public company in 2004, and we made
two major acquisitions, one of which was buying out the minority interests in our joint
venture in China, so we are now a wholly owned company. In addition, we bought a
nutraceutical plant, which manufactures not only the necessary nutraceutical supplements
for our feed that is used in the fish farming, but also some health products that are
doing very nicely in China. We are looking to bring those same health products to sell in North
America.
The other major thing we accomplished in 2004 was we
more than doubled the capacity of our processing plant in order to meet demand, and we are
successful now in producing much greater volumes of product.”
CEOCFO: How important is
the nutraceutical aspect in the quality of the feed?
Mr. Sporns: “The saying is you are what you eat, and it
is the same in agriculture, particularly in aquaculture. The end result is dictated by the
quality of what you put in. Much of the technology comes not so much from the mixing of
the feed but in the manufacturing of the supplements. In our case, our health products and
nutraceutical plant is able to manufacture those supplements to our standards, something
that entails a fair amount of intellectual property. Being 100% owner of that is a big
plus. It’s an essential piece of our vertical quality control and it’s also key
to meeting new requirements for ‘traceability,’ which is the ability to track
seafood products back to catch or harvest locations in order to ensure consumer health.
Traceability is now mandatory in the U.S. as of this year, and our vertical integration
gives us a key advantage over most other international aquatic producers.”
CEOCFO: Why is now the
right time to promote your brand name?
Mr. Sporns: “What we have achieved thus far is a
vertically integrated company where we have control over quality production from start to
finish. We have doubled the capacity of our processing plant, acquired a company giving us
control of formulating the feed and manufacturing the nutraceutical additives. And we are
about to begin building a new feed mill. We have significant capital investment
through a recent partnership with Amalgamated Resources Holdings Inc., which has agreed to
provide loan guarantees of up to $70 million to support the company’s growth plan.
With all these pieces in place, we are positioned to
begin to build a strong new brand identity in leading Western markets, beginning with the United
States. Currently the way we export to the U.S. is by containers of frozen products. The
container is purchased by large distributors who, in turn, break up the contents and sell
to retailers and service industries. What we want to do in order to get a differentiated
story to the ultimate consumers - the retailers, the service industry – is to create
greater name recognition for HQ and the quality we represent. We are looking to interface
more directly with them and, in turn, provide them with the details of our zero-toxin
products.”
CEOCFO: How are you
planning to accomplish your plan?
Mr. Sporns: “We are in the process of selecting a
marketing firm to help us to find the target buyer and the ultimate target consumer that
is seeking the highest quality fish products and is willing to pay a premium for these
superior foods. We want to create the kinds of messages that will make the HQ commitment
to zero-toxin aquaculture clear and attractive to such customers. Once that process is
complete, we will then publish all of the necessary support materials. We will have a new
brand, a new logo, a redefined website, and we will then be able to support our retail
outlets with the necessary materials so that the ultimate consumer is made fully aware of
the benefits of our products.”
CEOCFO: Will you tell us
about the main products, the industry trends and the market?
Mr. Sporns: “We are focusing on tilapia, which is our
mainstay. China is the world’s largest producer of tilapia, and the United States is
the largest consumer. Tilapia is now one of the top five seafood imports in the United
States. The American Tilapia Association is projecting that by 2010 the total sales of
tilapia will be in excess of $4 billion. It is a major product and has huge growth
applications. We are seeing growth in excess of 30% per year, just on the imports into the
United States. In addition, our plant is being solicited by European buyers,
Japanese and Korean buyers, people who are all interested in the same thing – getting
the best quality food products possible. By concentrating on tilapia as a zero-toxin
farmed product, we are looking at conveying a few messages: One is that our oceans are
polluted and are being depleted and responsible, sustainable aquaculture is the best
alternative. Another is that tilapia, and especially HQ zero-toxin tilapia, is essentially
the ideal farmed fish.
We are encouraging people to go to a farmed product. They are hearing some of the
negatives on farming, which I associate with the effort by certain farmers in developing
countries to provide the lowest cost product by making some short-cuts such as boosting
production with hormones or adding antibiotics to maintain health in ponds that are
overstocked, that type of thing. At HQ, we are going completely in the other direction,
looking at complete quality, avoiding any use of any chemicals and antibiotics during the
growth process. We come to our clients with the purest, most toxin-free product possible.
That is a trend being seen in the industry now; we are seeing major distributors of
natural and organic foods, such as Whole Foods Market Inc., successfully providing their
buying public with products that may be priced higher but which they can confidently
affirm meet much higher standards of quality. With the avian flu, mad cow disease, and
problems associated with ocean-caught fish having concentrations of heavy metals and other
toxins that are pollutant in our oceans currently, we are seeing more and more people
concerned about understanding the quality of what they are eating and what in fact are the
toxins involved with that particular product.”
CEOCFO: Are the people
buying tilapia by product name or is there a new way of presenting it?
Mr. Sporns: “Actually, they are, and increasingly we are
seeing tilapia on the menus in New York and in many restaurants across the United States.
It is also on the menus in franchised food operations such as Denny’s, Appleby’s,
and Red Lobster. Some restaurants call it ‘white fish,’ and in Europe they call
it ‘Saint Peters fish’ because it is the fish of the biblical reference, which
Saint Peter fed to the masses. It is a hardy fish and has been around for a long time.
Today, its market is huge and growing rapidly, as I mentioned earlier. At the moment HQ
commands 10% of the U.S. imports of tilapia and we are seeing increasing demand. We expect
our new branding program to lead to even greater demand, especially in premium markets.
And with our new processing plant, we are very ready for that.”
CEOCFO: Would you tell
us about your funding for the growth ahead?
Mr. Sporns: “Well, let me just first emphasize that we
are a profitable company, and our revenues and net profit have been rising steadily
throughout this fiscal year. With this track record as a publicly traded company, we are
attracting the interest of a number of financial institutions, including investment funds
interested in supporting socially and environmentally responsible companies. We have also
announced the receipt of a loan guarantee package provided to us through an American
company, Amalgamated Resources Holdings Inc. (known as “Alps”). This loan
guarantee allows us to access funding up to $70 million without strong equity dilution and
without the need for paying more than what a company our size should be paying in terms of
funding costs. These are the types of opportunities the financial markets are offering to
us.”
CEOCFO: Why should
investors be interested and what do they typically miss about the company?
Mr. Sporns: “Investors should be interested because we
are a rapidly growing company that has built an integrated infrastructure, founded in
state-of-the-art technology, to become a dominant leader in an expanding industry that is
still new.
Aquaculture is a huge market that is still not well
enough known or understood in the investment world. The idea of obtaining seafood
primarily through farming rather than catching it on the open seas is relatively new, but
it is the only way to meet the demand today, much less in the near future. This is
still a fragmented industry, however, with no clear leader that is vertically integrated
from fish food to fish sticks, as we are now. In the past two years, we have delivered on
each step of our business plan to build this integrated infrastructure, and that’s
why we believe we are positioned for a leadership role in this international market.
The global ocean catch has not increased for five
years and cannot keep pace with demand. The shortfall in seafood products is being met by
aquaculture production, and China is the leading producer of farmed fish, with an
estimated 70% market share. By 2025, the U.S. market alone is expected to need 2.2 million
tons more seafood than it now produces. Average consumption per person has more than
doubled and the U.S. has an $8 billion seafood trade deficit. At $11 billion in imports in
2003, fish is second only to oil among imported natural resources.
That said, we believe the future of this industry is
dependent on quality and sustainability – which means continually monitoring fish
stocks and fishing methods to maintain a balance of diverse biologic resources for the
future.
That’s why HQ has pursued the best engineering
and biological technology from the start, and I believe we may be unique in this, thanks
to our early relationship with CIDA in Canada. Our insistence on vertical
integration and quality control at all levels now allows us to bring a superior product to
the American market focusing on zero toxicity, which is a very important health issue that
affects global trade. I discussed earlier the new rules on traceability that the U.S.
government is instituting. This establishes an even higher mark for quality than the HACCP
certification, and HQ has already met that new standard. Our company, unlike some
high-tech companies, has the opportunity to grow in an almost unlimited fashion because of
the importance that food represents for all of us.
In addition to the quality of our food products, HQ
is also committed to quality in business practices because we believe it is good business
and will be to the benefit of ourselves and our investors, as well as those who work with
us. Besides zero-toxin production and sustainable farming practices, we are committed to
transparent corporate governance and good corporate citizenship in all our international
locations. We believe that this is the way to generate long-term profitability and
shareholder value.”
CEOCFO: Is your
management team in place and are you prepared to handle future growth?
Mr. Sporns: “Our operational team is firmly in place and
running smoothly. Our top executives are American-educated managers from both China and Canada,
enabling the company to operate efficiently in both Western and Asian cultures. We are now
adding a larger, more sophisticated marketing, branding and distribution team in order to
expand our presence in the U.S. and later in the European markets. This team is being
centered in our new headquarters in Seattle. In fact I have just come back from the Pacific
Northwest where I have been meeting with the new people responsible for this initiative,
and I’m feeling very impressed. They have tremendous seafood experience; they
are fully aware of our business plans and are very much supportive of it. They have
experience and yet they are young enough to grow with the opportunity. We are very
confident that the expertise is there. We have also signed various agreements with leading
technology providers so we are assured of access to all of the technology required as each
level of new growth is realized. We have exciting new challenges ahead, and I’m
confident we have the team identified that can answer any questions that may arise.”
CEOCFO: Final thoughts
for our readers?
Mr. Sporns: “We very much appreciate the positive
reaction we’ve received from investors. We have over 3000 shareholders currently and
we are trading some 800 thousand shares per day. But I think we are just seeing the tip of
the iceberg in terms of the dawning of understanding of what our company represents in
terms of the future growth potential. We only need to look at the wonderful success of the
Whole Foods model to understand that people are prepared to pay a premium for healthy
food.
HQ is in the forefront of the aquaculture industry and already has a strong footprint due
to its base in China. Our vertically integrated business model, our commitment to
sustainable growth, transparent corporate governance and the latest technologies deployed
in responsible and innovative ways, have all had a major impact in structuring our
industry in China. Since China accounts for more than half of the world’s aquaculture
production and its share is growing, we believe that our approach will become the model
for growth and quality for the industry worldwide.”
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