China Green Agriculture, Inc.
Q1 2016 Earnings Call Transcript

Published: 13 Nov 2015

[Operator:]

Welcome to the China Green Agriculture First Quarter Fiscal Year 2016 Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to Ran Liu, Secretary of the Board. Please go ahead.

[Ran Liu:]

Thank you, operator. Thank you and welcome everyone to China Green Agriculture first quarter of fiscal year 2016 earnings conference call. The earnings release went to the wire pre-market today. Our call today is hosted by Mr. Ken Ren, the Company’s Chief Financial Officer, and me. I would like to remind our listeners that the management’s prepared remarks contain forward-looking statements that are subject to risks and uncertainties, and the 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 of rapid growth, intensity of competition from other providers of China Green Agriculture products and services, general economic conditions, geopolitical events and regulatory change 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 reflected 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, November 13, 2015. China Green Agriculture assumes no obligation to update these projections in the future as market conditions change. Now I'm pleased to report about for the first quarter of fiscal year 2016. For the fiscal first quarter ended September 30, 2015 revenues were $54.2 million as compared to $51.3 million for fiscal first quarter ended September 30, 2014. Net income for the first quarter was $7.2 million or $0.02 per share as compared to $8.1 million or $0.25 per share. We’re glad that we have revenue, net income and EPS beating the guidance. During the quarter we accidently attended different kinds of national agriculture exports to potential customers. We’re very pleased with our consistent performance in the first quarter of the first quarter of fiscal year 2016 where we continued to build shareholder value and long term durability of our business model sustained net profit and balance sheet discipline. As we exited our recently concluded fiscal quarter with the close cooperation with business partners as of late, the company will grow into a leading one in the agriculture industry. We look forward to start our new quarter that we aim to fulfill our strategy of developing the new business model. Finally, as we enter the new quarter China Green Agriculture is well on its way to achieving the benchmark of our 10-year plan. I will now discuss the financial results in greater detail. Total net sales for the three months ended September 30, 2015 were $54.2 million, an increase of $2.9 million or 5.6% from $51.3 million for three months ended September 30, 2014. This increase was due to an increase in net sales from all three business segments. For the three months ended September 30, 2015 Yuxing's net sales increased $0.2 million or 0.7% to $34.7 million from $34.5 million for the three months ended September 30, 2014. For the three months ended September 30, 2015 total net sales were $18.2 million an increase of $2.2 million or 14.1% from $16 million for the three months ended September 30, 2014. For the three months ended September 30, 2015, Yuxing's net sales were $1.2 million, an increase of $0.4 million or 45.8% from $0.9 million for the three months ended September 30, 2014. Total cost of goods sold for the three months ended September 30, 2015, was $30 million, an increase of $3.4 million or 12.6% from $26.6 million for the three months ended September 30, 2014. This increase was mainly due to the 5.6% increase in the net sales and increase in cost of raw materials. The total gross profit for the three months ended September 30, 2015 decreased by $45 million or 2% to $24.2 million as compared to $24.7 million for the three months ended September 30, 2014. Gross profit margin was 44.6% and 48.1% for the three months ended September 30, 2015 and 2014, respectively. Our selling expenses consisted primarily of salaries of sales personnel, advertising and promotion expenses, freight-out costs and related compensation. Selling expenses was $2.3 million or 4.3% of net sales for the three months ended September 30, 2015 as compared to $0.7 million or 1.4% of net sales for the three months ended of September 30, 2014, an increase of $1.6 million or 218.6% Our selling expenses, amortization of our deferred assets were $9.7 million or 17.9% of net sales for the three months ended September 30, 2015 as compared to $10.3 million or 20.1% of net sales for the three months ended September 30, 2014, a decrease of $6.6 million or 6%. This decrease was due to the fact that the some of the deferred assets were fully amortized and therefore no amortization was recorded on the full amortized assets during the three months ended September 30, 2015. The general and administrative expenses consisted primarily of related salaries, rental expenses, business development, depreciation and the travel expenses incurred by our general and administrative departments, and legal and professional expenses including expenses incurred and accrued for certain litigations. General and administrative expenses were $2.8 million or 5.1% of net sales for the three months ended September 30, 2015 as compared to $3.1 million or 6.1%, of net sales for the three months ended September 30, 2014, a decrease of $0.4 million or 11.7%. The decrease in general and administrative expenses was mainly due to the related expense in the stock compensation awarded to the employees which amounted to $1.1 million for the three months ended September 30, 2015 as compared to about $1.4 million for the three months ended September 30, 2014. Net income for the three months ended September 30, 2015 was $7.2 million, an decrease of about $0.9 million or 10.5%, compared to about $8.1 million for the three months ended September 30, 2014. The decrease was attributable to higher cost of goods, so an increase in selling expenses backed by an increase in net sales and lower general and other administrative expenses. Net income as a percentage of total net sales was approximately 13.4% and 15.8% for the three months ended September 30, 2015 and 2014, respectively. Now the financial conditions. Net cash provided in operating activities was $7.1 million for the three months ended September 30, 2015, a decrease of $10.4 million or 59.9% from cash provided by operating activities of $17.4 million for the three months ended September 30, 2014. Net cash is in [indiscernible] activities for the three months ended September 30, 2015 was $2.600 million a decrease of 2.556 million or 99.9% from cash used in [indiscernible] activities of $2.559 million for the three months ended September 30, 2014. The Company had $20.8 million in short-term loans as of September 30, 2015, a decrease of $0.8 million, as compared to $23.6 million in short term loans as of June 30, 2015. We have accounts receivable was $67.4 million as of September 30, 2015 as compared to $68.5 million as of June 30, 2015 a decrease of $1.1 million or 1.6%. I will now discuss our second quarter of fiscal 2016 and fiscal year 2016 guidance. For the second quarter ending December 31, 2015, management expects the net sales of $53.7 million to $56 million. The net income of $3 million to $5 million, and EPS of $0.08 to $0.14 based on 36.9 million fully diluted shares. For the Fiscal Year ended June 30, 2016, management has expectation net sales of $267.6 million to $269.4 million, net income of $21.1 million to $24.1 million, and EPS of $0.57 to $0.65 based on 36.9 million fully diluted shares. Thank you. This concludes my remarks. Operator we’re now prepared for questions from our audience. Thank you.

[Operator:]

[Operator Instructions]. Your first question is from Richard Jones [ph], Private Investor.

[Unidentified Analyst:]

I would like to know what was the total cash and cash equivalents at September 30?

[Ken Ren:]

The cash at the end of September 30, is 94 million compared to the beginning of this fiscal quarter which was also the end of last fiscal year 2015 was 93 million.

[Unidentified Analyst:]

What was the total of deferred assets at September 30?

[Ken Ren:]

The deferred assets net of amortization as of September 30, 2015 Is a loss a little bit south of 40 million compared to the same account with a balance of 51 million at the end of fiscal year September 2015 which was June 30 this year.

[Unidentified Analyst:]

You said a south of 40 million?

[Ken Ren:]

Yes a little bit of south of 40 million.

[Unidentified Analyst:]

Would characterize please the performance of your ecommerce platform in the first fiscal quarter ?

[Ken Ren:]

We had recently been working very hard and very excited in developing our e-commerce business approach. Let me give you some remark and background information regarding the overall e-commerce business. The Chinese market in China, as you may notice today is two days after November the 11th, and November the 11th is a fresh and a new holiday ecommerce festival in China. It's very comparable to Black Friday later this month in U.S. and nearly every retailer, every company we’re aware of importance of this holiday. Well the effort and the preparation to embrace the sales exceeded or matched the traditional efforts that companies or retailers endeavored during the New Year season or the Chinese New Year. It's like Black Friday and then Christmas shopping and here in China we got November 11, the ecommerce holiday and plus the upcoming New Year sales season. And we have been focusing, we have focused on how to increase our brand awareness for our e-commerce platform during this holiday season and it is still ongoing officially for the record because we started in promotion even starting from the beginning of this month and it is still ongoing it will conclude by next week. And I will give you an example. On November 11, on our ecommerce channel, the platform for instance for every hour we offered a gift, a iPhone 6s to the winner online shop of our company. Whoever placed highest bid or executed the largest transaction or products and that includes both our company owned platform as well as an affiliate platform, [indiscernible] platform which we disclosed and discussed from a year ago and in these event it reflect our expectations and our understanding about the market and this market is new. It's [indiscernible] because ecommerce in agricultural material and agricultural products never existed before in China. We hope to get in the market we act like a child [ph]. We don't know everything, but we seek the answers and sometimes we -- let me give you an example, another example. We felt sometimes like a we are a child, like a child trying to learn how to walk in this new market. There's no adult in this new market also we learned how to crawl and to stand in the past the old market, we tried to walk or even run because we saw the front runners Alibaba as well as [indiscernible] they are front runners and they become the top runners, the fast runners, the winners so far in the consumer retail universe of ecommerce. However the agriculture ecommerce there is no front runner and during our beginning attempts and this is our new attempts, we failed, we got nerves, we tried but even sometimes we look at ourselves and we say to ourselves what we do that, we should never try that again and we simply crawling or never think about penetrating into this, but when we tried, when we stumbled, when fell we do not feel that we’re hopeless and on our company's leadership it's unlike that we will never walk instead we tried again to move forward and we believe that only hunger, only desire that our investor or shareholder will love to help us will support us. We'll get out of hand when we need help and when we try to make effort, like our customers and our distributors. Our distributor are more that excited than we expected in these present development, in our effort. They are eager -- they want to follow us all stretched arms and hands to welcome even our very little, very tiny step in this brave direction. And we give them the equivalent support or equivalent confidence that we know our willingness to explore again and our exploration will in the end lead to progress and success.

[Operator:]

Our next question is from [indiscernible].

[Unidentified Analyst:]

Just more macro question, it seems like your sales have the growth has slowed down. Is that because more just the overall economic environment in China or just more of the agriculture environment? It just seems like we have seems either per distributor or just the overall sales purpose slowdown?

[Ken Ren:]

This question addresses the hard world full of challenges in front of us this year. However it is very fortunate also for our company to have our Founder with us [indiscernible] of great intellect and he serves in the most leadership position with us. He teaches us in difficult times and such difficult time is not the first time we have ever met. We recall more than five years ago back to 2008, early 2009 when the global economy was looming to collapse [indiscernible] bankrupt, the whole world were fighting for future, our company backed them to weather the storm sustained the record gross from it's first small company to the formally listed company in already stabilized industry sometime in this year were much longer than before. We’re more confident than before and to combat the past -- I'm sorry to combat the difficulties we explore, we employ, our skills, our stocks and our experience and we grab the challenges and questions we face every day and addressing this question honestly is an important part of building a great company and we use a both our intellectual and our feelings. In the face of challenge such as this difficult macroeconomy you're right it's a mixed reflection of both the slowing down of the whole Chinese economy as well as the even harder or even stronger pressure in our specific agriculture industry. While we don’t know everything but we do know enough to continue our past of building a great company and we know what we need to do and we know what will make us to continue to overcome this difficult time and for instance many companies or even some very big companies part of the bankruptcy already, I like to give an example, today in the last 24 hours one of the top ten largest manufacturer in China announced that they will default on their bond and they intend to file bankruptcy proceeding through the court and that reflects how hard it is in the basic material industry in the property market in infrastructure development and that nevertheless also impacts our industry. Our industry can be characterized as so fundamental as well as consumer based industry. It's very critical it's very important, it's the foundation of the overall Chinese market. It is important that even at the difficult times people still need to be fair. They need to eat and they never so [indiscernible] and upper stream the need [indiscernible]. However as the commodity market collapsed from the beginning of this year the natural gas market, the coal market which also impact our raw material market in our compounds segment added fluctuation, volatility and difficulties in our industry. We don’t see perceive that such challenge can be short term and we realize this and we felt like penetrating into the ecommerce given our market position is a great advantage for us to consolidate this fragmented target market which we have aimed for a while and the feedback and the interest that come with us from our distributors valid it our expectations. I hope this could give you a better understanding about the overall Chinese economy and the particular market.

[Unidentified Analyst:]

Are you dominant on any particular region and/or are you trying to expand into other regions within China or provinces I guess that’s the right way to put it. Are you selling to all the provinces within in China?

[Ken Ren:]

We have been in nationwide supplier of specialty products, this is our beginning. Throughout our history we expanded our product portfolio. We started with liquid high concentration cellulitis and we expanded to potter based [indiscernible] and specialty composite and five years ago when we inherited the [indiscernible] fertilizers company, the composite fertilizers became a substantial segment in our product to portfolio. Compound fertilizers is much heavier that high concentrated fertilizers that means is it's sales is subject to economic radius of distance. It's incurred consultation cost, that said as Grufon [ph] is located in Beijing, Beijing is in Northern China. The [indiscernible] target market traditionally was four to six provinces in northern and northeastern China adjacent to Beijing. Those provinces are our most concentrated target market for composite fertilizers. On the other hand for concentrated products we offered them through a network of distributors nationwide and the e-commerce platform or channel is deemed as an amplifier of the traditional distributor network. This serves as equivalent important arm in our online to offline business platform vision and in near future the customers will enjoy more convenience in ordering our products, or returning our product and we believe we’re doing the same exact thing as other ecommerce providers are doing now in a concept like that. In urban area, what we offer is an easing, accessible shipments we adore in selective cities the fulfillment of shipping orders within five hours or same day of organic food, vegetables as well as consumer products such as wine, bakeries and because in selected cities it very popular ordering [indiscernible] and we can bring the produce such as various fresh products from our country side to -- at the same time also the consumer of our fertilizer product back to the city resident and such business currently is ongoing and developing with the collaboration between a company and the affiliated swiss [ph] platform. And we will integrate the need with our supplier and to transform our fertilizer customer's needs into our food consumers demand. We characterize this business model as a barrel model. That concludes my elaborate explanation to your question.

[Operator:]

[Operator Instructions]. We have a follow-up question from Richard Jones [ph], Private Investor.

[Unidentified Analyst:]

Last year you paid a dividend I believe last fiscal year of $0.10, have you considered paying a dividend in this fiscal year as a means of boosting your stock?

[Ken Ren:]

This is question we have heard before and we addressed it before, we’re not surprised to hear this question again and I'm very happy to answer this question and you’re welcomed to ask the same question in the future and I will update you with our intention. Our intention is to reward our shareholders with the best growth we can offer, we can deliver, and we realize that will aware that addressing these on question from our dear investors is very, very important part of building our company with our shareholders. We said that we’re going to pay the dividend and we did it. We answered a similar question last to last conference call yes we considered that and we will deliver it when the time is appropriate and we believe that there is a profit and it's ready and we will do it. It will be subjected to the Board consideration as well as the availability and feasibility of our financial conditions that would allow the Board to consider when to approve such actions and we know that rewarding our shareholders with that monitoring gain is a means of our goals. We would try to view our company better with our mind and with our heart. Sometimes answers for questions will not come immediately but I believe that these questions nevertheless still take some time could be answered through our effort, through sincere efforts in delivering fetch answers from the market and we will continue to work on this and we will provide you an honest answer to every question and also we think ourselves give assurance and the courage and the courage to motivate ourselves and to encourage us to move forward to build this company better.

[Operator:]

I show no other questions at this time. Would like to make any closing comments?

[Ken Ren:]

Thank you everybody for participating in our conference call. We’re very happy for being with us during the last hours and we will meet you and talk to you at the next call.