Noah Education CEO Discusses F2Q2011 Results - Earnings Call Transcript

Noah Education Holdings, Ltd. ( NED)

F2Q2011 Earnings Call

March 1, 2011 8:00 AM ET

Executives

Dong Xu – Chairman and CEO

Dora Li – VP, Finance and Controller

Jerry He – EVP and CFO

Analysts

Howard Zhou – Roth Capital Partners

Ella Ji – Oppenheimer

Tony Kamin – Eastwood Partners

Presentation

Operator

Welcome to the Noah Education Second 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 second quarter fiscal year 2011 financial results. The release is available on the company’s IR Web page at 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 unknown and known results, 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

[Interpreted] Good morning and to some good evening. Thank you for joining us today on our second quarter fiscal 2011 results conference call. As you may have seen from our earnings release, this quarter revenue from our Education Services business grew a very impressive 264% year-over-year and exceeded our guidance as our Little New Star brand experienced ongoing franchise expansion and as Wentai Education joined Noah for its first full quarter and turned in an impressive performance. In addition to this current results obtained this quarter in this segment, we also laid the ground works for future success as we significantly built out our pipeline of Wentai Education School.

The education services market in China continues to expand rapidly and see increasing demand, yet the industry remains fragmented and nascent. We recognized these opportunities and other market leader, we believe we are well positioned to capitalize on them. We are committed to our strategic initiative of driving growth through the acquisition of complementary businesses and remain proactive in speaking out prospects on this front. We have maintained a solid cash position which also affords the flexibility to invest in our future as opportunities arrive.

While we are encouraged by our performance in the education services side of the business, our group net revenue for the quarter increased 58.6% year-over-year to RMB64.2 million and we recorded a net loss of RMB53.4 million. These declines were driven by the ongoing restructuring of our distribution network against a backdrop of increasing competition and evolving consumer demand. We are confident of the fact that the challenges faced within the ELP business over the past several quarters have addressed – impacted our financial results and recognize that our current position does not adequately align us with our long term goals and objectives. As such, we have taken action to consider strategic alternative for our ELP business.

Among the alternatives, we’re evaluating, Mr. Benguo Tang, one of the company’s founders have submitted an indicative non-binding offer to purchase the ELP business and its operational asset. To fully understand the implications and benefits to this offer and to asses and explore other options of the ELP business, the board has established a special committee attached with this undertaking. This committee is fully dedicated to closely examining each option and choosing the route that will preserve the health of our business, the board of future growth initiative, and of course being the best interest of our shareholders.

Jerry will walk through the details of the offer and current process of selecting the most appropriate alternative to the ELP business in a few minutes, but rest assured that even as we work through this transitional period we remain committed to maintaining the financial and fundamental health of our business. We continue to work on our relationship with our distributors and are heavily focused on reducing inventory and account receivable level. And of course, on the education services side our effort to accelerate growth and expansion are unwavering. We look forward to placing increasing attention and focused on our education services business as we believe that our distinct opportunities for us to gain market share, drive growth and emerge as the leading provider in this space.

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

Dora Li

Thank you, Chairman. Starting from slide 3, as you have seen from our release net revenue in the second quarter was down 58.6% year-over-year to RMB64.2 million slightly below our initial guidance due to continued pressures in the ELP space. However, our education service portion of the business continued a strong growth trajectory exceeding our initial expectations.

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