Noah Education Holdings, Ltd. (NED)

Q1 2011 Earnings Call

November 16, 2010 7:30 AM ET

Executives

Dong Xu – Chairman and CEO

Jerry He – CFO and Executive Vice President

Dora Li – VP, Finance and Controller

Analysts

Ella Ji – Oppenheimer

Presentation

Operator

Welcome to Noah Education First Quarter Fiscal 2011 Financial Results Conference Call. At this time all participants are in listen-only mode. Following management's prepared remarks there will be a Q&A session. As a reminder, this conference is being recorded.

Joining the conference today are Mr. Dong Xu, Chairman and CEO, Mr. Jerry He, CFO and Executive Vice President and Ms. Dora Li, VP of Finance and Controller.

After the U.S. markets closed yesterday afternoon, Noah issued a press release announcing its first quarter fiscal year 2011 financial results. The release is available on the company's IR Web page at www.ir.noahedu.com.cn, along with the presentation for today’s call. This call is also being broadcast live over the Internet.

Before management's presentation, I would like to refer to the Safe Harbor statement in the connection with today's conference call. This call may contain forward-looking statements within the meaning of the Private Securities Litigation and Reform Act of 1995, including certain expectations and goals which are subject to numerous assumptions and risks.

Forward-looking statements involve known and unknown risks and uncertainties, many of which are beyond our control which may cause actual results to differ materially from any future results or achievements implied by such forward-looking statements.

The company's actual results could differ materially from those contained in the risk factors section of the company's final prospectus or recent filings filed with the Securities and Exchange Commission. Unless required by law, the company undertakes no obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

I would now like to turn the call over to Noah's Chairman and CEO, Mr. Dong Xu. Sir, please go ahead.

Dong Xu

Good morning and to some good evening. Thank you for joining us today for our first quarter fiscal 2011 results conference call. We also reached a significant milestone within our educations services business. At the end of July, as we finalized our acquisition of a 70% stake in Wentai Education and further extended our footprint into this very attractive industry in China.

Our newly acquired interest in Wentai, not only demonstrates our ability to execute on our objective for accretive growth, but is an important strategic move as Wentai unique business model and reputation for academic excellence of a robust growth prospect. As we see a growing demand in China for top quality private education, this niche market is largely untapped, thus providing Wentai with an ideal setting for rapid expansion.

At the Little New Star, we will continue to add franchises in each quarter and this business remains untracked to meet our growth targets for 2011. With Little New Star and Wentai, we already have two very reputable and rapidly expanding education services brands under a Noah umbrella. So we are dedicated to pursuing additional targets for strategic acquisitions that will complement our existing entities and create additional [endurance] to the very attractive education services space in China.

We are complacent of the challenges we face in our ELP business and we believe we have implemented the appropriate remedial measures to recover our business. We are building strong relationships with our distributors, particularly those with the most timely payment record, releasing our inventory levels and executing on our cost savings initiatives to more effectively compete in an increasingly material and penetrated industry. We continue to employ a customer-focused approach to maximizing returns from our ELP product portfolio.

Overall, we initiated our fiscal year 2011 by proactively addressing the challenges we think. The initiatives and strategic imperatives we have implemented, firmly places on the road to recovery. Though there remains much work to do, we are focused on rebuilding our health channels, maintaining healthy inventory levels and accounts receivables and streamlining our cost-based and optimizing resources deployment in higher growth segments. Our management team is committed to accelerating organic and accretive growth within our educations services base.

With that I will now turn the call over to Dora to walk you through our financial performance for the quarter.

Dora Li

Thank you, Chairman. As you’ve seen from release, net revenue in the first quarter declined 46.5% year-over-year to RMB127.3 million, in line with our initial guidance, as we rebut our distribution network and recover sales in our core business, ELP sales or RMB107.6 million down 52.2% from the first quarter of fiscal 2010.

DLD revenue declined 25.8% to RMB62.6 million and the KLD revenue was down 73.7% year-over-year to RMB27.9 million. Both of these segments were impacted by pressing pressure and declining sales volume in light of the toughening competitive landscape and ongoing disruption from our channel realignment initiatives.

As we continue to actively stabilized and restore growth to our ELP business, we are also focused on building up our education service offering, which we will as a more profitable and sustainable long-term business. As you can see on slide 5, revenues from education services grew by more than 51.5% year-over-year to about RMB20 million during the quarter, in line with our strategic decisions to accelerate the growth from this segment.

Little New Star accounted for RMB 11.6 million of education services revenue this quarter, with the remaining RMB8.1 million coming from two-month contribution from Wentai Education since the completion of acquisition on July 29, 2010.

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