Mar 12, 2015
Executives
Todd Waltz – Chief Financial Officer Eric McAfee – Chairman and Chief Executive Officer
Analysts
Scott Ozer – Sandlapper Securities Tom Welch – Ameriprise
Operator
Welcome to the March 12, 2015, Aemetis Earnings Review and Business Update Conference Call. At this time, all participants are in a listen-only mode.
A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host, Mr. Todd Waltz, the Executive Vice President and Chief Financial Officer of Aemetis.
Mr. Waltz, you may begin.
Todd Waltz
Thank you, Rob. Welcome to the Aemetis March Earnings Review and Business Update Conference Call.
Before we begin our presentation, I would like to read the following disclaimer statement. This conference call will contain forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934.
Forward-looking statements discussed on this conference call will include without limitation, statements regarding expectations for financial performance, revenue, margin and operational efficiencies; our refinancing activity and funds to be received under our EB-5 loan program; increasing production at our biodiesel and glycerin biorefinery in India; expanding our business into rapidly growing markets with new technologies and products, including renewable jet fuel and diesel; expectations regarding continuing export demand; our positioning to be a leader in the next generation opportunities with our industry; our plans to construct and operate a liquid CO2 unit at our Keyes ethanol plant; and further reductions in our outstanding debt. Words or phrases such as anticipates, may, will, should, believes, estimates, expects, intends, plans, predicts, projects, potential, targets, will likely result, will continue or similar expressions are intended to identify forward-looking statements.
Forward-looking statements involve risk and uncertainty. A number of factors could cause actual future results to differ materially from historical results or from those expected or implied by such forward-looking statements, including those identified in our filings with the SEC.
Such forward-looking statements are based on our best estimates of future results, performance or achievements, based on current conditions and our most recent results. We do not undertake to publicly update or revise our forward-looking statements even if future changes make it apparent that any projected result will not be realized.
Our discussion on this call will include review of non-GAAP measures as a supplement to financial results based on GAAP. A reconciliation of the non-GAAP measures to the most directly comparable GAAP measures is included in our earnings release for the quarter and year ended December 31, 2014, which is available on our website in the Media section under Press Releases tab.
Adjusted EBITDA is defined as net income or loss plus, to the extent deducted in calculating such net income, interest expense, loss on extinguishment, income tax expense, intangible and other amortization expense, depreciation expense, and share-based compensation expense. Our press release with details of today’s earnings review can be found at the company’s website, www.aemetis.com in the Media section under Press Releases.
Now I would like to introduce the Founder, Chairman, and Chief Executive Officer of Aemetis, Inc., Mr. Eric McAfee.
Eric McAfee
Thank you, Todd. We welcome our shareholders and financial markets professionals to today's Aemetis March 2015 earnings review and business update conference call.
For newer investors and participants, I suggest visiting the Aemetis website at aemetis.com to review today’s earnings press release, the updated Aemetis corporate presentation, Aemetis filings with the SEC and previous Aemetis business update conference calls. Todd Waltz, Aemetis’ Chief Financial Officer, will now provide a review of the company’s 2014 year-end and fourth quarter financial results, and then I will give a business update, which will be followed by a question-and-answer session.
So let’s begin the financial review. Todd?
Todd Waltz
Thank you, Eric. I’m pleased to report that we improved on major aspects of our business in 2014 compared to previous years.
Stronger gross profits, combined with reductions in sales, general, and administrative costs, as well as a reduction in interest expense, all contributed to the company’s profitability in 2014. For the full year of 2014, Aemetis’ revenues grew to a record $208 million, a 17% increase over 2013’s revenues of $178 million.
In addition, gross profit grew substantially to $37 million, up 103% from $18 million in 2013, and operating income increased to $24 million, an increase of $21.6 million over operating income in 2013 of $2.5 million. Net income for 2014 was $7.1 million, or $0.35 per diluted share, a significant improvement to 2013’s loss of $24.4 million and $1.28 per diluted share, respectively.
The company also recorded record adjusted EBITDA of $30 million in 2014, up from $10 million in 2013. In 2014, interest expense and amortizations was reduced by 38% to $17.4 million, a significant reduction from the $28 million of interest expense and amortizations in 2013, which reflects an improvement of our cash flow generated from operations, as well as principal reductions made in 2014 from EB-5 funding.
In addition, SG&A expense was reduced in 2014 to $12.6 million, down from $15.3 million in 2013, further contributing to overall profitability. At the operational level, in 2014 Aemetis recorded record production of 60.2 million gallons of ethanol and 408,000 tons of wet distiller’s grains at the Keyes plant in California.
Our ethanol plant operations averaged 109% of nameplate capacity in 2014, compared to 103% of capacity in the nine months of operation in 2013. In 2014, the Aemetis Keyes ethanol facility recorded only one day of downtime for scheduled maintenance.
Additionally, our India subsidiary produced 9,000 metric tons of biodiesel and 2,200 metric tons of refined glycerin, primarily for European customers. Overall, 2014 was a very successful year for Aemetis, with the company making significant gains in revenue growth, profitability, cash flow, and the reduction of outstanding debt and interest expense.
For the fourth quarter of 2014, revenues were $41.5 million, down from $54 million in the strong 2013 fourth quarter. This was primarily caused by a decline in the sales price for both ethanol and wet distiller’s grains.
In the fourth quarter, gross profits were $2.5 million, down from $11.3 million in the same quarter of 2013. A key component to the reduction in gross profit was temporarily increased rail transportation costs early in the fourth quarter of 2014.
SG&A expense was largely unchanged in the year-over-year fourth quarter, $3.3 million in 2014, versus $3.2 million in 2013. SG&A included about $300,000 of engineering costs related to future expansion of our refineries into the production of new products, including liquid CO2.
And despite a challenging pricing environment that impacted revenues and profitability during Q4, we continued the trend of the prior three quarters by lowering interest and amortization expense to $3 million in the fourth quarter, a 44% reduction from $5.4 million of interest and amortization expense in the fourth quarter of 2013. The operating loss of $1 million in Q4 of 2014 compares to $8 million of operating income during the same period of 2013.
Net loss of $3.7 million in the December 2014 quarter compares to $3.3 million in net income for Q4 of 2013. Adjusted EBITDA during the fourth quarter of 2014 was $600,000, compared to $9.9 million in Q4 of 2013.
While our results in the fourth quarter of 2014 were softer than we would like, I’d note that year-over-year Q4 comparisons may be somewhat exaggerated due to the very strong results posted in the fourth quarter of 2013, which was one of ours and the industry’s most successful quarters in recent history. That completes our financial review of the fourth quarter and year-end December 2014.
And now I’d like to re-introduce Eric McAfee, Founder, Chairman, and Chief Executive Officer of Aemetis, for a business update. Eric?
Eric McAfee
Thank you, Todd. Aemetis continues to achieve important milestones that are creating significant value for shareholders.
Aemetis is seeking to commercialize the conversion of first generation biodiesel and ethanol plants into integrated production facilities that produce an expanded portfolio of higher-value products, such as renewable jet fuel, renewable diesel, renewable chemicals, as well as valuable products from liquefied CO2. For those of you who may be new to our company, let me take a moment to give you some brief background information.
Aemetis was founded in 2006, and we own and operate 110 million gallons per year of renewable fuel production capacity in the U.S. and in India.
Included in our production portfolio is a 60 million gallon per year capacity ethanol plant located in Keyes, California, which is near Modesto in California’s Central Valley. We also own and operate a 50 million gallon per year capacity distilled biodiesel and refined glycerin biorefinery on the East Coast of India, near the port city of Kakinada.
Aemetis operates the largest capacity renewable fuels production facility in California, and is the largest U.S.-owned renewable fuels producer in Asia. We also operate a research and development facility at the Maryland Biotech Center for the development of patented microbes for biofuels and biochemicals production.
As Todd just mentioned, in 2014 Aemetis had record revenues of $208 million, record adjusted EBITDA of $30 million, and very strong gross profit, operating income and net income. Our Keyes ethanol plant recorded record production of fuel and wet distiller’s grains, which is sold without drying and used as high-value, high-protein animal feed by local dairies.
The India biorefinery produced 9,000 metric tons of biodiesel and 2,200 metric tons of refined glycerin, both of which we expect to show significant growth in 2015 due to significant policy improvements in India during the past few months. We also made significant strides in reducing our overall interest expense by 34% year-over-year.
A key accomplishment during 2014 that is showing significant results in Q1 2015 is that we have approved or received $18.5 million from the EB-5 escrow account for transfer to Aemetis company accounts. An approval is the receipt from the U.S.
Customs & Immigration Service of an I-526 approval allowing us to disburse from the escrow account to Aemetis the $500,000 from an investor. As of the end of 2014, we had only $1.5 million in Aemetis company accounts from EB-5 funding, so Q1 2015 has increased that funding amount by $17 million as of today.
We are well along the way to securing $36 million of sub-debt financing through the EB-5 program, at only a 3% interest rate and no principal payments for four years. This attractive financing is allocated to the repayment of the Third Eye Capital bridge financing that was provided for the acquisition, upgrade and operation of our wholly-owned biofuels facilities.
Congress created the EB-5 program in 1990 to benefit the U.S. economy and create new jobs by attracting investment from qualified foreign investors, who are granted a path to U.S.
citizenship through an investment of $500,000 into a qualified project. To date, Aemetis has received into escrow $24 million through the EB-5 program, and we expect to have the full $36 million fully funded into escrow in 2015, with a substantial portion or potentially the entire $36 million approved or actually transferred into Aemetis accounts from the escrow.
The original build cost of our two plants was about $165 million. By using bridge funding, we were able to take advantage of opportunities to acquire, build and upgrade facilities at significant discounts to their build cost, then refinance the Third Eye Capital bridge funding with 3% interest rate EB-5 funding.
Though the EB-5 process is slow and highly technical, with extensive Asian business relationships required in order to market to investors, Aemetis has demonstrated success in executing on this bridge financing and refinancing plan. We plan to launch additional projects using the same financing model, enabling Aemetis to upgrade existing facilities and take full advantage of opportunities, while other companies may be unable to move forward to develop new, high-margin products for growing markets.
We view the EB-5 program as a powerful tool with which we can invest in new technologies, expand the production of high-value products and create jobs. We are very pleased about the positive momentum our EB-5 project has gained in the past year and look forward to expansion of our participation in the future.
Beyond the financial highlights just reviewed by Todd, we listed Aemetis on the NASDAQ stock market in June 2014, which is significant for both the company and shareholders as we look to broaden the base of Aemetis investors to include additional institutional investors and to provide greater liquidity to existing shareholders. Additionally in 2014, Aemetis was awarded a $3 million grant from the State of California for the development of an in-state sorghum development program.
This program will enable California ethanol producers to work with local farmers to transition existing farm acreage to grain sorghum, also known as milo, which is a lower-carbon feedstock that can be used as a substitute for corn, and will provide additional value in low-carbon fuel standard credits. Grain sorghum uses less water than corn, which we believe will be attractive to farmers in drought stricken California.
Aemetis was the first domestic ethanol producer granted a new pathway by the U.S. EPA to qualify for higher value D5 advanced biofuels Renewable Identification Numbers by producing ethanol from grain sorghum in conjunction with biogas and our combined heat and power system for generating energy at the Keyes plant.
Together, these developments have the potential to lower our overall production expenses and generate much higher value for the lower carbon, non-food ethanol that can be produced by our plant. In October of 2014, we announced our plans to build and operate a liquid CO2 conversion unit at our Keyes ethanol facility.
By taking what is now a waste-product, more than 300 million pounds per year of excess CO2 gas that is more than 99% pure, and converting it to liquid CO2, we can produce a high-value co-product at the Keyes plant that can be sold into the large liquid CO2 market in California. These 2014 milestones represent just a few of our ongoing efforts to build additional shareholder value through improved financial performance, increased revenue growth and operational efficiencies.
Before highlighting some future investment opportunities that represent significant revenue and profit growth, let me provide some comments regarding Q4 of 2014 and the ethanol marketplace. As Todd mentioned, our financial results for the fourth quarter were lower than for the same period in 2013.
I believe some context around the numbers will help explain the differences. First, the fourth quarter of 2013 was one of the strongest in recent history for ethanol production margins.
Second, our cost of rail transportation in the first month of Q4 2014 rose dramatically due to excessive premiums charged by rail carriers related to the large corn harvest and other factors. While rail freight eventually normalized during the remainder of the quarter, the cash flow impact on our business was meaningful.
Finally, during the fourth quarter our average sales price for both ethanol and wet distillers grains declined as the industry entered a period of excessive production, increased inventory and lower demand relative to production rates during wintertime. While our interest expense for the 2014 fourth quarter was significantly lower than the year-over-year quarter in 2013, this combination of factors resulted in an operating loss during Q4 2014.
We believe that the ethanol business is operationally solid, with a high-yielding, high-uptime plant that is well situated for a return to growth moving forward. Co-product values including wet distillers grains have grown since late last year, and U.S.
ethanol exports remain strong. Exports of U.S.
produced ethanol reached 836 million gallons in 2014, a 35% increase over 2013. With solid existing export markets such as Canada and Brazil, as well as emerging export markets including the Philippines, India and the United Arab Emirates, we believe that continued strong export demand will benefit all U.S.
ethanol producers. Additionally, California’s Low Carbon Fuel Standard provides Aemetis with an additional opportunity to increase margins as we lower the carbon intensity of our ethanol, and look to bring additional lower CI products to the largest fuel market in the U.S.
In fact, Aemetis already produces among the lowest carbon intensity ethanol commercially available, and receives a premium for its fuel sold in California. Now, I’d like to outline a few of the important trends we see emerging, and how Aemetis is well positioned to take advantage of these growth opportunities.
We have built strong and profitable renewable fuels businesses, but that is just the beginning of our plans and our path to future growth. In 2006, when we founded the company, it was clear that the most logical and cost effective manner in which to grow the lower-carbon, advanced renewable fuels and biochemicals industries was to leverage the existing first generation plants and other infrastructure already in place.
Billions of dollars have been invested in today’s renewable fuel refineries in the U.S. and around the world, and each of these facilities offers an opportunity to serve as a platform for new technologies that can produce even lower carbon renewable fuels and chemicals.
Traditional ethanol and biodiesel producers are eager to lower the carbon intensity of their fuels, further their geographic reach, increase their profitability, and diversify their product mix. And to that end, a number of new technologies and processes are currently being implemented at a rapidly accelerating pace.
We believe the often promised future, or next generation, of high-value biofuels and biochemicals has arrived and we intend to be a leader in this next phase of industry advancement. To that end, Aemetis has aggressively pursued a number of emerging trends and technologies, and we are actively implementing business plans to incorporate these at our facilities, and eventually, at others as well.
As an example, we were first to sign a global technology license with Chevron Lummus and Applied Research Associates known as ARA for the production of 100% drop-in renewable jet fuel and diesel. To our knowledge, every other renewable jet fuel technology is limited to a 50% blend due to a lack of aromatics that provide lubrication.
Today, we are in the process of bringing this technology, the only known 100% drop-in renewable jet fuel, to large-scale commercialization for customers including the U.S. military, commercial airlines and business aviation worldwide.
Commercial airlines and the military organizations have publically stated goals of reducing greenhouse gas emissions through the use of renewable jet fuel, and many have already begun this transition. Similarly, companies of all sizes who use diesel fuel are actively pursuing suppliers of renewable diesel to meet rigorous greenhouse gas and carbon intensity reduction requirements.
The opportunity is quite large, the U.S. jet fuel market is $66 billion, and the U.S.
diesel market is $189 billion per year. Through utilization of our own production facilities, and through arrangements for the upgrade of other facilities, Aemetis is uniquely positioned to be a leader in this transition to next-generation, cleaner burning renewable fuels and chemicals utilizing lower-cost feedstocks.
The conversion of vegetable and waste animal oils into renewable jet and diesel fuel is in the commercialization phase during 2015 and 2016, and we are working to be a worldwide leader in the production of products to supply this fast-growing market. In addition, we have developed and acquired patented microbe technology that can convert agricultural waste into ethanol.
While this technology is not yet ready for commercial scale deployment, our R&D team is actively working to scale the process for larger-scale deployment. Additionally, we are currently engaged with companies that can process lower-cost feedstocks into fuel ethanol, as well as converting distillers grains into higher-value products with end markets outside the fuel industry.
Please see our Aemetis presentation on the Aemetis website for a description of some of these products and markets. With recent favorable government changes in India, our wholly-owned and operated 50 million gallon per year capacity biodiesel plant is experiencing significant growth in the India domestic market.
India consumes about 18 billion gallons per year of diesel, causing poor air quality and health problems for children and the elderly. Our company’s biodiesel product is a leading solution to health problems caused by smog in India, since diesel engines are widely used for transportation and energy production, yet poor quality diesel in India causes emissions that have been measured at 50 times higher than U.S.
limits. Our biodiesel looks like water, is 99.8% pure fuel and significantly reduces harmful emissions.
If you have an opportunity to travel to India or China, as President Obama did on his recent visit to meet Prime Minister Modi, the damaging effects of air pollution are immediately apparent. Our company has invested seven years and is now the leader in India in the production of highest-quality biodiesel, directly improving the health of the India people by the broadened adoption of our product into buses, trucks and railroads in India.
The recent elimination of about $20 billion per year of diesel subsidies and the January 2015 approval of direct sales by our plant to the India Railway, bus companies, trucking firms, owners of stationary generators and other customers has resulted in a dramatic increase in the volume of new customer adoption of our high-quality, distilled biodiesel. As the only large distilled biodiesel producer in India, we produce a product unequalled by other producers.
In addition, our India Biorefinery is strategically located near transportation infrastructure that enables us to serve the fast-growing Indian market as well as the broader Asia-Pacific region. Whether through the introduction of lower-cost, lower carbon feedstocks and new processing technologies for the domestic ethanol market, finding alternative, higher-value end markets for ethanol co-products, increasing the production and reach of our biorefinery in India, or through the commercial scale deployment of next-generation renewable jet and diesel fuel technologies, Aemetis is firmly positioned for revenue growth and market leadership.
We are excited about the opportunities that lie before us, and look forward to sharing our progress with you in the coming months and years. Finally, through our continued progress in reducing interest expenses, including refinancing our bridge debt with the 3% interest rate EB-5 program funding and other commercial financing mechanisms, we remain firmly committed to strengthening our financial position to expand our opportunities for future growth and profitability.
Now, let’s take a few questions from our call participants. Operator?
Operator
Thank you, Mr. McAfee.
We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Scott Ozer with Sandlapper Securities.
Please proceed with your question.
Scott Ozer
Hi. How are you, Eric?
Eric McAfee
Good, Scott. Good to hear from you.
Scott Ozer
Did you say, I think I missed it, how much you reduced in debt? And are there any comments about the increase in ethanol being blended in fuels in the future?
Eric McAfee
Let’s take the fuels in future question first. As I think everybody knows, the EPA was under Federal law obligated to announce in November 1 of 2013 what the 2014 blended ethanol would be in United States.
Federal law provides for 14.4 million gallons of blend. There is some political intervention by the White House.
They did not propose a compliance with Federal law. They just have postponed announcing what the 2014 number would be.
Again, as I’m sure everyone knows, there are only two criteria that can be used by the EPA. The first criteria is whether it causes severe economic harm to U.S.
economy. That has been litigated and that’s no longer an issue for anybody.
Number two is whether there is sufficient capacity. And the U.S.
produced 14.4 billion gallons of ethanol in the year 2014. The mandate was 2014, 14.4 billion gallons.
So just almost coincidently the industry produced exactly the amount required under the ethanol mandate. So we obviously had traditional capacity that we actually produced the ethanol for the year.
So the EPA has backed itself into a bit of a corner. They really don’t have any regulatory authority to do anything other than to announce the 14.4 for 2014 and 15.0 for 2015 for ethanol.
And we anticipate that their statements that that will happen by June of this year is probably accurate. Their – this has became a political hot potato and we’re getting back into presidential season again, so this may be a loss of somebody’s desk and so we do expect that there will be an announcement.
The affect on the industry has been dramatic. I think that’s the right term.
The decline in crude oil is relevant and impactful, but frankly not having enforcement of federal law is most impactful. It’s impact on two ways; number one, we built up inventories from about 15 million barrels to 21 million barrels over the course of that time period in which the EPA is not enforcing the use of our product in U.S.
And excess inventory always drives that market. So actual margin decline in our industry – in [indiscernible] is more correlated with the EPA not allowing us to sell domestically and forcing us to have to go to offshore customers with now record 35% increase in exports, but that was not because we saw export markets that we’re seeing higher prices in domestic markets, it’s because EPA was literally enforcing a 90% petroleum mandate in the U.S.
and leaving 10% left for the biofuels market. We are quite disappointed in both the White House as well as the EPA.
We think this was a hasty political decision that upon reflection was a very, very poor decision. And we think from the point of view of enforcement rule of law that compliance with the regulation is the minimum - and the minimum, not the maximum that the EPA should do.
And so we look forward to that clarity finally coming to rest in the form of enforcement of the 14.4 for 2015 and 15.0 for 2016. The result of that will be that the number of wins in the marketplace that were left over from 2011 when the U.S.
government was funding 45 cents a gallon to the oil industry to enhance their profits and buying biofuels – the net effect is that those RINs are reduced almost to zero. There is only going to be a couple hundred million RINs around, which means if someone wants to get this piece of paper saying that they bought biofuels, they’ll actually have to buy the biofuels.
So the obligated parties will be in the business of buying biofuels rather than buying pieces of paper. And for the last nearly 36 months, it’s a very viable proposition to not even buy biofuels but instead just buy the little piece of paper from somebody else.
And we see that business shrinking significantly and we think that that would return us to a healthy, more balanced supply-demand equation. Current capacity in U.S.
is a little over 15 billion gallons and the mandate for 2015 is 16 billion gallons. So the ethanol industry specifically, as well as biodiesel quite frankly have been very focused on meeting the goals of the Renewable Fuel Standard, have achieved those goals despite the lack in enforcement and we are almost now looking through review mirror, looking for the EPA to catch up with what reality is, which is, we’ve already achieved those goals, all we need to do is just put out an announcement that they are complying with reality.
And the net effects for investors will be, I think their much more confident investment in second generation, lower carbon, non-food feedstock technologies such as [indiscernible] ethanol, renewable jet fuel, renewable diesel etcetera, because I think the first generation business will prove itself to be not only positive cash flow, but a very solid part of the U.S. economy.
Scott Ozer
Okay, and also how much of the debt is paid back –
Eric McAfee
I was actually doing that calculation for you. We have – I’m going to include the first quarter.
It’s now March 12, so we are almost through the first quarter. But our EB-5 program funds basically directly flow to the payment of our bridge funding.
So we are basically almost on a dollar for dollar basis, we bring in this low cost EB-5 financing, we turn around and we reduce our high-class bridge financing. So the total net new dollars as of March 12 from that program just in the first quarter is $17 million.
So, we are looking at $17 million reduction of senior debt in this quarter to-date. It will be more than that by the time we get at end of the quarter, but that’s just in EB-5.
And then of course we had a reduction during Q4. We started the year at $73 million of senior secured debt, ended the year at approximately $60 million approximately.
So, if you have the two together, we are talking about a reduction in senior debt in excess of $32 million through a combination of our EB-5 funding and operational positive cash flow. On top of that of course, we paid interest in Other Cost as we described.
Those costs are decreasing, but still we are a significant use of funds in 2014.
Scott Ozer
Okay. Thank you very much.
Eric McAfee
Yeah, certainly.
Operator
There are no further questions at this time. I’d like to turn the floor back over to management for closing comments.
Eric McAfee
Terrific.
Operator
Excuse me?
Eric McAfee
We got Tom Welch that I think wants to make a question here. Do you want to take him into the queue.
Operator
Our next question comes from Tom Welch with Ameriprise. Please proceed with your question.
Tom Welch
Hey, thank you for taking my question. Looking at the numbers for the biodiesel plant in India, through the Q2 of 2013, plant looks like it’s running at about 25% of capacity.
Moving forward to Q4 of 2014 it looks like it was running at about 4% capacity. And I know that the Indian government has been deregulating its subsidies of biodiesel since 2012.
Could you comment on what you see happening currently with the biodiesel market in India and what you are looking at so far as far as increased usage of that plant?
Eric McAfee
The Indian market has been closed to biodiesel production largely because of this $20 billion per year subsidy for diesel which artificially depressed the price for biodiesel because biodiesel did not receive the subsidy. The result has been that we have operated it as an export-oriented unit - that’s a technical term used in India to mean, we bring in feedstock either domestically or internationally, we process them in India and then we exported these finished goods.
And the target market has been Europe. And so, the 2013 numbers and early 2014 numbers are really European customers, not domestic India customers.
Now we built the plant in India specifically because we knew there would be a market in India; it’s just, India is notorious for being a little slow in getting what you and I might consider obvious policies adopted. And so we were early, and are now, what I would consider to be not only the leader, but are going to be the big winner in India, as it’s a rapidly growing market domestically.
But that rapidly growing market did not appear in 2013; did not appear in 2014. Technically, we couldn’t even sell directly to end users until January of 2015.
We had to sell through the three government-owned blenders. That was the way the government controlled the subsidy environment, was that all producers had to sell thought the three government owned blenders.
That rule was changed. In January 2015, we were leader in getting that rule changed and we can now sell directly to end users and that has obviously improved our margins down to sell through intermediary.
And number two, as you might suspect dramatically increased the pace of our sales and marketing activities because we no longer just belong to a government agency with [indiscernible] going along its own bureaucratic pace to sell our product. So India was – what the [indiscernible] was up 50% last year.
This year, they’re projected to be fast growing economy in the emerging world. They are very bullish about American investment they trying desperately to attract American investment if you have been reading much about India and knocking down regulatory barriers.
We have been the direct beneficiary. Our regulatory barriers have been removed by Prime Minister, Modi and his government.
And they are actively trying to improve air quality motors to attract few other investment, investment in IT and healthcare and food production and a wide array of other things are being impaired by the poor air quality in India. So they see this as one of these fundamental infrastructure investments that India needs to make which is to blend bio-fuels into the fuel supply and improve air quality.
So in terms of math, we’ve one currently, we have a one plant 50 million gallons, there is only four other plants in the whole country. So the entire value for production capacity is about 250 million gallons in the country and all that production is shifting from an exported oriented focus to domestic.
But it’s an 18 billion gallon market and a 10% blend which sustain as being the minimal not to have a meaningful impact in air quality, there is 1.8 billion gallons that required blending. So we are significantly below the target.
I should mention one thing and this is extremely important. We are not blending at 10% with most, if not, all of our direct customers.
We’re blending at 100% why? The economic, our feedstock and our process is just plain cheaper than the global price crude oil even at today’s lower prices and so we are able to offer discounts of 5%, sometimes little more depending on whether the customer is closer to our facility or not.
And there is really no other way to get a discount on fuel in India because they’ve removed subsidies and so the global price of crude oil is now flowing through the price of diesel, except providing bio-diesel, a lower carbon, more healthy, cheaper now, alternative to diesel. And so, as you can imagine that is a very large opportunity for cost reduction among our customers, bus companies, trucking companies, the railroads et cetera and it’s probably the only controllable cost option they have is convert to a large plant or perhaps even a 100% bio-diesel.
Our entire plant generators and transportation facility equipment, the trucks and other equipment we use at our plant has been running on 100% of our own distilled bio-diesel products for last several years and so we are a business that eats our own dog food and now that is the test case that, that data we generate because data for our customers and their own data of course enhances that, but I’ve been quite surprised in a pleasant way that our customers are actually looking at 100% replacement of traditional diesel. That has a very dramatic reduction of emission which I think it tremendous and has a significant impact on their cost.
Tom Welch
Thank you. Can I ask a second question?
Eric McAfee
Yeah, go head.
Tom Welch
Aemetis is an entirely adaptor of advanced proven bio-fuel technologies. You’ve already license the ISOCONVERSION process for jet fuel.
Now enzymatic esterification has been rolled our commercially just beginning to get it being adopted here in the U.S. Have you looked at enzymatic esterification of making – in the process of bio-diesel production?
Eric McAfee
We have and notice Aemetis as you know is the leader in that process, there is a plant in the Midwest that is currently being scaled up to demonstrate that extra technology in the U.S. It does promise lower conversion costs and this is using enzymes instead of yeast as you know to convert biomass into ethanol.
We believe that there are some opportunities to do exactly that. What I believe is going to be the correct approach is to take a smaller plant that is located in a feedstock disadvantage area.
What’s that mean? It means a place where getting corn can be expensive or perhaps not even available at times and then converting that into this starch or say lot of feedstock flexibility and in essence enabling a plant that otherwise wouldn’t be able to operate – to actually operate and have all the benefits of lower operating costs and lower CI scores et cetera.
And I do see several opportunities like that in just even today even in this low cost corn environment, there are some plants that really should be well positioned to adopt enzymatic processes. Our current plan is not a good candidate for that.
Not to say, we couldn’t save money, we probably could, but we have some other lower hangings fruits that is very, very high increases in positive cash flow for our plants and so it’s on the list but it’s so far down the list, it’s really not on the radar screen right now. We just have some other ways to take the products from our ethanol plant and upgrade them into, distilled corn oil turning into jet fuel being sold into the market.
It’s just a very high value creation opportunity. So those kinds of things, CO2 et cetera really trump the technology we described.
Tom Welch
Thank you.
Eric McAfee
I think its 2 ’o’ clock. Operator, do you want to go– just – go and wrap up our call here today.
Operator
Yeah, there are no further questions at this time. I would like to turn the floor back over to management for closing remarks.
Eric McAfee
Thank you to the Aemetis shareholders. Thank you for stock analysts and others for joining us today.
We had a pretty good long list today. We look forward to meeting with you and continuing our dialogue about growth opportunities for Aemetis.
Todd Waltz
Thank you for attending today’s Aemetis Business Update Conference Call. Please visit the Investor section of the Aemetis website where we have posted a written version and an audio version of this Aemetis Earnings Review and Business Update.
Rob?
Operator
This concludes today’s teleconference. You may disconnect your lines at this time and thank you for your participation.