China Green Agriculture, Inc.
Q3 2017 Earnings Call Transcript

Published: 16 May 2017

[Operator:]

Hello, and welcome to the China Green Agriculture Fiscal Year 2017 Third Quarter Earnings Call. All participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Tong Sha Lu [ph]. Please go ahead.

[Unidentified Corporate Representative:]

Thank you, operator. Thanks, and welcome everyone to China Green Agriculture's third quarter of fiscal year 2017 earnings conference call. The earnings release went through the wire pre-market today. Our call today is hosted by Richard Zhuoyu Li, the Company's President; and Mr. Tao Li, the Company's Chairman and Chief Executive Officer. I would like to remind our listener that management's prepared remarks contain forward-looking statements that are subject to risks and uncertainties and management may make additional forward-looking statements in response to your questions. Therefore, the Company claims the protection of Safe Harbor for forward-looking statements that is contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from those discussed today due to such risks, but not limited to, fluctuations in customer demand, management's rapid growth, intensity of competition from other providers of China Green Agriculture products and services, general economic conditions, geopolitical events and regulatory changes, and other information detailed from time-to-time in the company's filings and future filings with the United States Securities and Exchange Commission. Accordingly, although the company believes that the expectations reflect in such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct. In addition, any projections as to the Company's future performance represents management's estimates as of today, May 15, 2017. China Green Agriculture assumes no obligation to update these projections in the future as market conditions change. Now, I'm pleased to report results for the third quarter of fiscal year 2017. For the fiscal third quarter ended March 31, 2017, revenues were $81 million - $81.3 million as compared to $78.6 million for this fiscal third quarter ended March 31, 2016. Net income for the third quarter was $8.2 million or $0.21 per share, as compared to $8.3 million or $0.22 per share. We are very pleased with our consistent performance in the third quarter fiscal year 2017, where we continue to build shareholder value and the long-term durability of our business model, sustained net profit and balance sheet discipline as we exit recently concluded this fiscal quarter with our successful business combination, the VIE company contributes approximately $21.3 million in net revenue during this quarter. I will now discuss the financial results in greater detail. Total net sales for the three months ended March 31, 2017, were 81,305,678, an increase of $2,667,154 or 3.4% from $78,338,474 for the three months ended March 31, 2016. This increase was largely due to the inclusion of VIE's net sales during the three months ended March 31, 2017, which contributed approximately $21.3 million or 26.3% - 26 percentage of the total net sales. The total net sales without including VIE net sales for the three months ended March 31, 2017, were $59,956,373, a decrease of $18,382,151 or 23.8% from the same period a year ago. For the three months ended March 31, 2017, Jinong's net sales decreased by $5,285,418 or 16.7% to $26,316,821 from $31,302,239 for the three months ended March 31, 2016. This increase was mainly attributable to the decrease in Jinong's sales volume, which would was the result of Jinong's implementation of its sales strategy that rebalanced the production of fertilizer types during the last three months. For the three months ended March 31, 2017, Gufeng's net sales were $30,858,499, a decrease of $12,905,559 or 29.5% from $43,362,058 for the three months ended March 31, 2016. This increase [ph] was mainly attributable to Gufeng's lower selling prices and volumes to answer market demand during the three months ended March 31, 2017. For the three months ended March 31, 2017, Yuxing's net sales were $2,781,003, a decrease of $493,174 or 51% from $3,274,177 during the three months ended March 31, 2016. The decrease was mainly attributable to the decrease in market demand and the lower prices on Yuxing's top-grade flowers. Total cost of goods sold for the three months ended March 31, 2017, was $59,952,995, an increase of $6,048,810, or 11.2%, from $53,904,185 for the three months ended March 31, 2016. The increase was mainly due to the production and sale of VIE's products, which accounted for $19,260,074, or 32.1% of total cost of goods sold. The total cost of goods sold without including VIE's cost of goods sold for the three months ended March 31, 2017, was $40,692,921, a decrease of $13,211,264, or 24.5%, from the same period a year ago. Cost of goods sold by Jinong for the three months ended March 31, 2017 was $12,143,167, a decrease of $1,210,055, or 9.1%, from $13,353,222 for the three months ended March 31, 2016. The decrease in cost of goods sold was primarily attributable to the decrease in net sales during the last three months. Cost of goods sold by Gufeng for the three months ended March 31, 2017 was $26,319,435, a decrease of $11,789,876, or 30.9%, from $38,109,311 for the three months ended March 31, 2016. This decrease was primarily attributable to last products sold during the last three months. For the three months ended March 31, 2017, cost of goods sold by Yuxing was $2,230,319, a decrease of $211,333, or 8.7%, from $2,441,643 for the three months ended March 31, 2016. This decrease was mainly due to the decrease in Yuxing's net sales during the last three months. Total gross profit for the three months ended March 31, 2007, decreased by $3,381,656 to $21,352,333, as compared to $24,334,289 for the three months ended March 31, 2016. Gross profit margin was 26.3% and 31.5% for the three months ended March 31, 2017 and 2016, respectively. The decrease in gross profit margin was mainly due to the Jinong, Gufeng and Yuxing's decreased gross margins for the three months ended March 31, 2017, compared to the same period last year. Gross profit generated by Jinong decreased by $4,075,363, or 22.3%, to $14,173,654 for the three months ended March 31, 2017 from $18,249,017 for the three months ended March 31, 2016. Gross profit margin from Jinong's sales was approximately 53.9% and 57.7% for the three months ended March 31, 2017 and 2016, respectively. The decrease in gross profit margin was mainly due to the higher percentage of raw material cost and packaging cost. For the three months ended March 31, 2007 [ph], gross profit generated by Gufeng was $4,539,064, a decrease of $1,113,683, or 19.7%, from $5,652,747 for the three months ended March 31, 2016. Gross profit margin from Gufeng's sales was approximately 14.7% and 12.9% for the three months ended March 31, 2017 and 2016, respectively. The decrease in gross profit percentage was mainly due to the increased weight for lower-margin products sales in Gufeng's total sales answering market demand. For the three months ended March 31, 2017, gross profit generated by Yuxing was $550,684, a decrease of $281,841, or 33.9% from $832,525 for the three months ended March 31, 2016. The gross profit margin was approximately 19.8% and 25.4% for the three months ended March 31, 2017 and 2016, respectively. The increase in gross profit margin was mainly due to the higher percentage of labor cost during the three months ended March 31, 2017. Gross profits generated by VIEs were $2,089,231 with a gross profit margin of approximately 9.8% for the three months ended March 31, 2017. Our selling expenses consisted primarily of salaries of sales personnel, advertising and promotion expenses, freight-out costs and related compensation. Selling price were $2,130,825, or 7.5%, of net sales from the three months ended March 31, 2017, as compared to $3,441,511, or 4.4%, of net sales for the three months ended March 31, 2016, an increase of $2,689,314, or 78.1%. The selling expenses of VIE were $912,957, or 1.8%, of VIE's net sales. The selling expenses of Yuxing were $10,690, or 0.4%, of Yuxing's net sales for the three months ended March 31, 2017, as compared to $47,110, or 1.4%, of Yuxing's net sales for the three months ended March 31, 2016. The selling expenses of Gufeng were $80,781, or 0.3%, of Gufeng's net sales for the three months ended March 31, 2017, as compared to $189,626, or 0.4%, of Gufeng's net sales for the three months ended March 31, 2016. The selling expenses of Jinong for the three months ended March 31, 2007[ph] were $16,894,249, or 64.2%, of Jinong's net sales, as compared to selling expenses of $3,207,775, or 10.2%, of Jinong's net sales for the three months ended March 31, 2016. Our selling expenses, amortization of our deferred assets were $1,556,031, or 1.9%, of net sales for the three months ended March 31, 2017, as compared to $8,380,893 or 11.2%, of net sales for the three months ended March 31, 2016, a decrease of $7,224,862, or 82%. This decrease was due to the fact that some of the deferred assets were fully amortized and therefore no amortization was recorded on the fully amortized assets during the three months ended March 31, 2017. General and administrative expenses consisted primarily of related salaries, rental expenses, business development, depreciation and travel expenses incurred by our general and administrative departments and legal and professional expenses including expenses incurred and accrued for certain litigation. General and administrative expenses were $3,971,890, or 4.9%, of net sales for the three months ended March 31, 2017, as compared to $2,204,771, or 2.8%, of net sales for the three months ended March 31, 2016, an increase of $1,767,119, or 80%. The increase in general and administrative expenses was mainly due to VIEs, which had $357,652 of general and administrative expenses during the last three months. Net income for the three months ended March 31, 2017 was $8,191,675, a decrease of $60,096, or 0.7%, compared to $8,251,371 for the three months ended March 31, 2016. Net income as a percentage of total net sales was approximately 10.1% and 10.5% for the three months ended March 31, 2017 and 2016, respectively. For the nine months ended March 31, 2017, total net sales for the nine months ended March 31, 2017 were $201,935,263, an increase of $12,146,518, or 6.4%, from $189,288,245 for the nine months ended March 31, 2016. This increase was largely due to the inclusion of VIE's net sales during the nine months ended March 31, 2017, which contributed approximately $43 million, or 21.3%, of the total net sales. The total net sales without including VIE's net sales for the nine months ended March 31, 2017 were $148,895,515, a decrease of $30,893,230, or 16.3%, from the same period a year ago. For the nine months ended March 31, 2017, Jinong's net sales decreased of $13,042,389, or 13.4%, to $84,570,215 from $97,612,604 for the nine months ended March 31, 2016. This decrease was mainly attributable to the decrease in Jinong's sales volume, which was the result of Jinong's implementation of its sales strategy that rebalanced the production of fertilizer types during the last nine months. For the nine months ended March 31, 2007 [ph], Gufeng's net sales were $67,734,572, a decrease of $17,841,992, or 20.8%, from $85,576,564 for the nine months ended March 31, 2016. This decrease was mainly attributable to Gufeng's lowering selling prices and volumes to answer market demand during the nine months ended March 31, 2017. For the nine months ended March 31, 2017, Yuxing's net sales were $6,590,728, a slight decrease of $8,849, or 0.1%, from $6,599,573 during the nine months ended March 31, 2016. Total cost of goods sold for the nine months ended March 31, 2007 [ph] was $137,971,361, an increase of $19,740,635, or 16.3%, from $118,230,726 for the nine months ended March 31, 2016. This increase was mainly due to the production and sale of VIE's products, which accounted for $33,173,460, or 26.9%, of total cost of goods sold. The total cost of goods sold without including VIE's cost of goods sold for the three months ended March 31, 2007 was $100,797,901, a decrease of $17,432,825, or 14.7%, from the same period a year ago. Cost of goods sold by Jinong for the nine months ended March 31, 2017 was $37,344,757, a decrease of $3,583,536, or 8.7%, from $41,328,293 for the nine months ended March 31, 2016. The decrease was primarily attributable to its lower net sales. Cost of goods sold by Gufeng for the nine months ended March 31, 2007 [ph] was $57,543,171, a decrease of $14,724,662, or 20.3%, from $72,567,833 for the nine months ended March 31, 2016. This decrease was primarily attributable to the less products sold during the last nine months. For the nine months ended March 31, 2017, cost of goods sold by Yuxing was $5,209,973, an increase of $875,273, or 20.2%, from $4,334,600 for the nine months ended March 31, 2016. This increase was mainly due to the increase in Yuxing's net sales and the higher labor costs. Total gross profit for the nine months ended March 31, 2017 decreased by $7,594,111 to $63,963,902, as compared to $71,558,019 for the nine months ended March 31, 2016. Gross profit margin was 31.7% and 37.7% for the nine months ended March 31, 2017 and 2016, respectively. Gross profit generated by Jinong decreased by $9,458,853, or 16.8%, to $46,825,458 for the nine months ended March 31, 2017 from $56,284,311 for the nine months ended March 31, 2016. Gross profit margin from Jinong's sales was approximately 55.4% and 57.7% for the nine months ended March 31, 2017 and 2016, respectively. The decrease in gross profit margin was mainly due to higher raw material cost and higher packaging cost. For the nine months ended March 31, 2017, gross profit generated by Gufeng was $9,891,401, a decrease of $3,117,330, or 24%, from $13,008,731 for the nine months ended March 31, 2016. Gross profit margin from Gufeng's sales was approximately 14.6% and 15.2% for the nine months ended March 22 [ph], 2017 and 2016, respectively. The decrease in gross profit percentage was mainly due to the increased weight for the lower-margin products sales in Gufeng's total sales answering to market demand. For the nine months ended March 31, 2017, gross profit generated by Yuxing was $1,380,755, a decrease of $884,222, or 39% from $2,264,977 for the nine months ended March 31, 2016. The gross profit margin was approximately 20.9% and 34.3% for the nine months ended March 31, 2017 and 2016, respectively. The decrease in gross profit margin was mainly due to the higher labor cost during the nine months ended March 31, 2017. Gross profits generated by VIEs was $5,866,289 with a gross profit margin of approximately 13.6% for the nine months ended March 31, 2017. Net income for the nine months ended March 31, 2017 was $21,049,266, an increase of $1,284,288, or 6.5%, compared to $19,764,978 for the nine months ended March 31, 2016. Net income as a percentage of total net sales was approximately 10.4% or 10.4% for the nine months ended March 31, 2017 and 2016, respectively. Financial conditions

[Operator:]

Thank you. We will now begin the question-and-answer session. [Operator Instructions] All right. There are no questions at the present time. So, I would like to return the call to management for any closing comments.

[Unidentified Corporate Representative:]

Thank you, operator. Thank you, everyone, for participating in this conference call. And this concludes today's call. Have a great day. See you next quarter. Bye-bye.

[Operator:]

Thank you.

[Unidentified Corporate Representative:]

Thank you, everyone. Thank you.

[Operator:]

Thank you. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.