Origin Agritech Limited
Q4 2014 Earnings Call Transcript

Published: 8 Jan 2015

[Operator:]

Greetings and welcome to the Origin Agritech Fiscal 2014 Earnings Conference Call. At this time all participants are in a listen only mode. A brief question-and-answer session will follow the following presentation. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Miss Kay Liu. Please go ahead Ma’am.

[Kay Liu:]

Thank you. Welcome to our year-end earnings conference call. Joining me today on the call are Dr. Gengchen Han our Chairman and CEO and Dr. Dr. Zheng Chen our CFO. Before we get started, I would like to remind everyone that this conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-Looking statements are statements that are not exactly historical facts such as based upon the beliefs and expectations of management and are subject to risk and uncertainties which could cause actual results to differ from the forward-looking statements. Risks on these holdings Origin's filings with the Securities and Exchange Commission, information set forth herein should be read in light of such risks. Origin assumes no obligation to update information content in this conference call. Now, I would like to turn the call over to Dr. Gengchen for prepared remarks.

[Gengchen Han:]

Thank you. Good morning, and for those in China, good evening. Before I start, I would like to state that the press release for fiscal year 2014s financial results have been released earlier this morning. Fiscal Year 2014 was a very challenging year in the seed industry in China. However, we have successfully weathered through the storm and we believe we have come out of the storm with a much stronger and a happier company. Although the management couldn’t control the environment we are operating at, we have effectively managed what we can control and we are proud to share with you some of those achievements. In today’s prepared remark, I will first discuss about our biotechnology development, followed by our operational improvements and how those improvements helped us to reduce our cost structure. I will then go over our financial results for the year. First on the biotechnology progress, we have further advanced our genetically modified corn seed pipeline with several generations of GM technologies. We received and announced the Bio-Safety Certificate from Chinese Ministry of Agriculture this with from our first generation transgenic phytase corn seed. In addition, we have four commercial hybrids or phytase traits that have as per the Phase 4 production test and they are now in the Phase 5 by safety certificate stage. More importantly, our next generation biotech products glyphosate tolerance concept has also has the Phase 4 production test and as I mentioned [ph] for the Phase 5 Bio-Safety Certificate. Our new technology of stacked traits of glyphosate tolerance and the insect of resistance has shown very promising results and is now in Phase three environmental release test. We believe we are the leading biotechnology seed company in China, and I would like to share with you today that our leading position is protected with strong intellectual protections through patents. Other than the patents owned are research institutional partners. Origin now has six domestic patents and a wide informational PCT patent in the biotechnology area. Fiscal year 2014 marks the year of great progress with three patents awarded and the three additional patents we applied for. Now I would also like to share with you equally exciting news in the backcrossing of biotech traits into hybrid corn varieties, an important step towards the commercialisation for biotechnology seed products. Without going into the technical details I should see that it’s usually takes several years to complete the closing step for each corn variety. At this point I would like to report to you that we have achieved desirable results to incorporate our biotech’s traits into our own corn varieties and those varieties for multinational companies. Those multinational companies have the intention to license our GM technologies when commercial patent is approved in China. Next on the operational improvement front, we achieved significant improvements in operating efficiency in the cost reduction in fiscal year 2014 as we reduced overhead count by 22% and reduced the general and administrative expenses by 30% year-over-year. We believe our efforts over the last three years in cost reduction and operational improvements are critical, especially when we face the challenges during the industry bottom cycle. Just in the G&A expenses alone, we reduced the cost by about RMB40 million or US$6.5 million from the fiscal year 2011, and the G&A expenses in the fiscal year 2014 were close to just half of the expenses in fiscal year 2011. Now I would like to summarize the financial performance for fiscal year 2014. Net loss for the year was RMB9.53 million or US$1.55 million compared to the net income of RMB7.49 million a year ago. The loss was mainly due to the decline in revenue and then increase in production cost. Net loss per share was RMB0.42 or US$0.07 for the fiscal year 2014, compared with net income of RMB0.32 in fiscal year 2013. Total revenues for the fiscal 2014 were RMB414.89 million or US$67.52 million, a decrease of 14% from RMB481.69 million in the previous year. Overall, the decrease in revenues was mainly due to the lower sales for the Company’s rice seed business and a decline in corn seed contract production businesses. Gross margin was 27.4% in fiscal year 2014 compared with 34.6% [ph] in fiscal year 2013. This decrease was mainly due to higher average unit purchase cost of seed as a result of loss in the production yield for fiscal year 2014. On the balance sheet, we have cash and cash equivalent of RMB46.27 million or US$7.52 million and our total borrowing were RMB289.83 million or US$47.11 million as of September 30, 2014. For year-end the inventory was RMB516.37 million up from RMB470.81 million as of September 30, 2013. We expect the inventory to reduce in fiscal year 2015 as the result of reduced production acreage in fiscal year 2014. On the cash flow, we had a net cash used in operating activities of RMB85.64 million or US$14.92 million during fiscal year 2014 compared to the cash outflow of RMB146.11 million for the fiscal year 2013. Net cash change in for both the investing activities and the financing activities were small and below RMB1 million for the fiscal year 2014. Looking forward to fiscal year 2015, we have the confidence to increase our sales revenues and improve overall operating income meaningfully. We expect the market condition to recover as the industry corn seed inventory is expected to decline. More importantly, we believe that our cash flow from operating activities will have a significant recovery as we manage our inventory and the sales efforts product by product. With that, I have reached to the end of today’s presentation. I will now open the call for questions. Operator, please begin the Q&A.

[Kay Liu:]

Okay. Thank you all for joining us for today’s call. And we wish everybody have a great day.

[Operator:]

Thank you. This concludes today’s conference. You may now disconnect your lines at this time. We thank you for your participation.