Origin Agritech Limited Reports Unaudited Financial Results For The Year Ended September 30, 2011

Origin Agritech Limited (NASDAQ: SEED) (“Origin” or the “Company”), a technology-focused supplier of crop seeds in China, today announced unaudited financial results for the year ended September 30, 2011. These unaudited year end results reflect the Company’s financial statements during the period from October 1, 2010 to September 30, 2011. Origin prepares its financial statements in accordance with generally accepted accounting principles (GAAP) of the United States.

FY 2011 Major Corporate Events
  • Reached a licensing agreement with a multinational partner to develop high-yield corn varieties incorporating the Origin Agritech glyphosate-resistant and Bt-traits
  • Established an exclusive subsidiary in Xinjiang province with a prominent local partner for hybrid seed production and distribution to the northwest region in China
  • Liquidation of our stake in Jilin Changrong High-tech Seed Limited (“Jilin Changrong”)
  • Completed the strategic leadership transition: Dr. Gengchen Han is now the Chairman, President and CEO of Origin; Dr. James Chen joins Origin as the new CFO; Mr. Larry K. Cordell joined Origin as the Chair of the Audit committee and an independent Director.

Dr. Gengchen Han, Chairman, President and Chief Executive Officer of Origin Agritech, commented, “The Chinese seed industry is entering the next growth phase, in which we believe the prospective demand for high quality products will continue to rise. Fundamentals such as the rising food consumption and stabilizing planting area continue to bode very positive for the seed industry in general while individual crop segments also demonstrate promising growth prospects. Diversifying use for corns such as manufacturing animal feed continues to provide robust support in driving up corn price. Rising exports is expected to further boost the growth of rice seed industry.”

“In addition, recently implemented key industry policies will raise the barrier of entry and considerably favor industry leaders with established, high-yielding seed product portfolio and vertically integrated research and development capabilities. In response, we have proactively started strategic initiatives such as expanding our hybrid seed conditioning and production capabilities, establishing new marketing channels in the Northwest, proceeding with our GMO applications, and most recently have completed our strategic leadership transition. We are confident that our recent initiatives would pay off in capturing new growth opportunities in the short run and further strengthening our competitive position.”

UNAUDITED FINANCIAL RESULTS OVERVIEW

During the fiscal year 2011, we generated revenues of RMB567.43 million (US$89.29 million), a slight decrease of 2.98% from September 30, 2010 with RMB584.86 million (US$87.28 million). This slight decrease was mainly due to lower production at our corn seeds production base in southern China, where a severe drought presented extreme difficulty for farming.

The decline in sales quantity in corn seeds was somewhat offset by a 17.25% price increase, netting a 2.92% year-over-year decrease in total hybrid corn seed revenues in fiscal 2011. Constrained capacity also limited economies of scales, hence impacting the gross margin for corn seeds.

Our gross profit for the fiscal year ended September 30, 2011 were RMB195.84 million (US$30.82 million), compared with RMB231.27 million (US$34.51 million) during the previous fiscal year. The gross profit decline is mainly due to the decrease in the production of corn because of adverse weather in seed production area, the increase in the rental fee of farmer’s land, and the intense industry competition. Lack of economies of scale in turn negatively impacted our profitability.

Total net operating expenses for the year ended September 30, 2011 were RMB183.23 million (US$28.83 million), up 9.75% from the same period one year ago with RMB166.95 million (US$24.91 million). Selling and marketing expenses were RMB56.83 million (US$8.94 million) for the fiscal year ended September 30, 2011, compared with RMB52.23 million (US$7.79 million) for the fiscal year ended September 30, 2010. General and administrative (“G&A”) expenses were RMB86.75 million (US$13.65 million) for the year ended September 30, 2011, compared with RMB78.71 million (US$11.75 million) for the same period last year. Research and development (“R&D”) expenses were RMB44.77 million (US$7.05 million) for the year ended September 30, 2011, up 16.72% from September 30, 2010 with RMB38.36 million (US$5.72 million). The increase was due in part to increase in salary expenses, staff benefits and grant of stock options as related to our performance equity plans of RMB 14.32 million (US$2.14 million). Other income, net were RMB5.12 million (US$0.81 million) for the fiscal year ended September 30, 2011, compared with RMB2.34 million (US$0.35 million) for the fiscal year ended September 30, 2010.

Income from operations for the year ended September 30, 2011 were RMB12.61 million (US$1.99 million), compared with the income from operations from September 30, 2010 of RMB64.32 million (US$9.60 million).

Net loss attributable to Origin for the fiscal year of 2011 was RMB 23.08 million (US$3.63 million) compared with a net profit attributable to Origin of RMB49.05 million (US$7.32 million) in the year ended September 30, 2010. Of note, this amount included the net loss from the liquidation of our investment of Jilin Changrong of RMB13.58 million (US$2.14 million).

Balance Sheet

As of September 30, 2011, we had approximately RMB129.94 million (US$20.45 million) in cash and cash equivalents. The liquidation of a Jilin Changrong negatively affected the cash position. As part of the liquidation, we have RMB 45 million of receivable from liquidation of Changrong in other current asset. Inventory was RMB 210.83 million for the fiscal year end, down from RMB 434.11 million on June 30, 2011. Plant and equipment was increased to RMB 190.09 million from RMB 166.60 million on June 30, 2011.

Statement of Cash Flow

Net cash provided by operating activities was RMB37.46 million (US$5.89 million) for the fiscal year ended September 30, 2011 compared to net cash of RMB298.61 million (US$44.56 million) for the fiscal year ended September 30, 2010. This decrease was primarily due to a net loss of RMB12.78 million (US$2.01 million) in fiscal year 2011, and the increase in the advances to growers and suppliers. Net cash used by investing activities was RMB154.39 million (US$24.30 million) for the year ended September 30, 2011. The increase in net cash used was in part due to the liquidation of a subsidiary-Changrong of RMB 67.98 million (US$10.70 million) and purchase of plant and equipment, intangible assets, respectively to RMB56.33 million (US$8.86 million) and RMB19.20 million (US$3.02 million). Net cash used in financing activities was RMB55.74 million (US$8.77 million) for the year ended September 30, 2011.

The goods already sold and delivered to customers can be seen as Deferred Revenue line on the balance sheet and the Advances from Customers records the advance cash receipts from customers this selling season.

Long Term R&D Catalysts

Glyphosate resistance and Bt corn, as highly successful products elsewhere in the world, remain “industry changers” in China. Origin Agritech retains the exclusive license rights to these specific traits, and expects to be the first company to commercialize these crops in China.

We have roughly 100 total hybrid products in the market, and have successfully developed our own proprietary hybrid seed varieties since 1998. As of September 2011, we have 25 proprietary corn seed products, 19 proprietary rice seed products, 7 proprietary cotton seed products and 1 proprietary canola seed products that are in commercial production and distribution. Currently, we have 10 breeding stations and employ 125 full time research personnel. Origin’s longstanding, education-based distribution platform enables us to introduce higher quality products into the marketplace, as Origin’s associated infrastructure affords us the ability to successfully launch genetically modified products.

About Origin

Founded in 1997 and headquartered in Beijing, Origin Agritech Limited (NASDAQ GS: SEED) is China’s leading, vertically-integrated agricultural biotechnology company specializing in research, development and production to supply the growing populations of China. Origin develops, grows, processes, and markets high quality, hybrid crop seeds to farmers throughout China and parts of Southeast Asia via a network of approximately 3,800 first-level distributors and 65,000 second-level distributors and retailers, and possesses a pipeline of genetically modified seed products including glyphosate resistant corn and Bt Corn. The first genetically modified corn seed product for China, Phytase corn, was approved in November 2009 of which Origin possesses exclusive rights. For further information, please log on to the Company’s website at: www.originagritech.com.

Forward Looking Statement

This release contains forward-looking statements. All forward-looking statements included in this release are based on information available to us on the date hereof. These statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results to differ materially from those implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "could," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," "targets," "goals," "projects," "continue," or variations of such words, similar expressions, or the negative of these terms or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Neither we nor any other person can assume responsibility for the accuracy and completeness of forward-looking statements. Important factors that may cause actual results to differ from expectations include, but are not limited to, those risk factors discussed in Origin's filings with the SEC including its annual report on Form 20-F to be filed. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.

 

UNAUDITED CONSOLIDATED BALANCE SHEETS(In thousands, except number of share and per share data)
     
September 30,
2010RMB   2011RMB   2011USD
ASSETS
Current Assets
Cash and cash equivalents

 

299,672

 

129,942

 

20,448
Accounts receivable, less allowance for doubtful amounts of RMB842 and RMB2,714 as of September 30, 2010 and 2011, respectively

10,048

6,616

1,041
Due from related parties 5,107 5,183 816
Advances to suppliers 3,986 12,418 1,954
Advances to growers 40,691 78,623 12,372
Inventories 283,174 210,826 33,175
Income tax recoverable 2,745 2,155 339
Other current assets   18,838     65,055     10,237  
Total current assets 664,261 510,818 80,382
 
Land use rights, net 20,907 33,094 5,208
Plant and equipment, net 161,681 190,094 29,913
Equity investments 22,505 20,503 3,226
Goodwill 16,665 11,973 1,884
Acquired intangible assets, net 35,344 29,232 4,600
Deferred income tax assets 9,766 3,028 476
Other assets   3,882     19,640     3,091  
Total assets   935,011     818,382     128,780  
 
LIABILITIES AND EQUITY
Current liabilities
Short-term borrowings 85,900 20,000 3,147
Accounts payable 8,960 5,740 903
Due to growers 42,186 7,947 1,251
Due to related parties 7,926 1,728 272
Advances from customers 348,797 397,933 62,618
Deferred revenues 23,111 19,812 3,118
Income tax payable 44,075 39,060 6,146
Other payables and accrued expenses   35,656     40,351     6,350  
Total current liabilities 596,611 532,571 83,805
 
Other long-term liabilities  9,426   -     -  
Total liabilities   606,037     532,571     83,805  
 
Shareholders’ equity:
Preferred stock (no par value; 1,000,000 shares authorized, none issued)

-

-

-
Common stock (no par value; 60,000,000 shares authorized, 23,292,412 and 23,382,812 shares issued and outstanding as of September 30, 2010 and 2011 respectively)

-

-

-
Additional paid-in capital 387,052 394,344 62,054
Retained earnings (deficit) (76,454 ) (99,533 ) (15,662 )
Treasury stock at cost (498,851 shares) (29,377 ) (29,377 ) (4,623 )
Accumulated other comprehensive loss   (9,336 )   (6,397 )   (1,007 )
Total Origin Agritech Limited shareholders’ equity 271,885 259,037 40,762
 
Non-controlling interests   57,089     26,774     4,213  
Total equity   328,974     285,811     44,975  
 
Total liabilities and equity   935,011     818,382     128,780  
 

 

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME(In thousands, except number of share and per share data)
 
    Year ended September 30,
2009RMB   2010RMB   2011RMB   2011USD
 
Revenues

 

592,492

 

584,860

 

567,434

 

89,291
Cost of revenues   (392,842 )   (353,587 )   (371,591 )   (58,473 )
 
Gross profit   199,650     231,273     195,843     30,818  
 
Operating expenses, net
Selling and marketing (55,648 ) (52,227 ) (56,831 ) (8,943 )
General and administrative (64,833 ) (78,708 ) (86,748 ) (13,651 )
Research and development (33,473 ) (38,356 ) (44,771 ) (7,045 )
Other income, net   1,991     2,340     5,120     806  
 
Total operating expenses, net   (151,963 )   (166,951 )   (183,230 )   (28,833 )
       
Income from operations 47,687 64,322 12,613 1,985
 
Interest expense (16,784 ) (8,539 ) (1,469 ) (231 )
Share of net income of equity investments 4,669 9,370 1,616 254
Gain on disposal of an equity investment - 8,883 - -
Loss on liquidation of a subsidiary - - (13,582 ) (2,137 )
Interest income 2,036 1,634 1,771 279
Loss on repurchase of convertible notes (51,101 ) - - -
Changes in the fair value of embedded derivatives   3,300     -     -     -  
 
Income before income taxes (10,193 ) 75,670 949 150
 
Income tax expense
Current (580 ) (4,046 ) (6,991 ) (1,100 )
Deferred   (11,152 )   (5,273 )   (6,739 )   (1,060 )
Income tax expense   (11,732 )   (9,319 )   (13,730 )   (2,160 )
 
Net income (loss) (21,925 ) 66,351 (12,781 ) (2,010 )
Less: Net income attributable to non-controlling interests   18,892     17,298     10,298     1,620  
 
Net income (loss) attributable to Origin Agritech Limited   (40,817 )   49,053     (23,079 )   (3,630 )
 
Other comprehensive income (loss)
Net income (loss) (21,925 ) 66,351 (12,781 ) (2,010 )
Foreign currency translation difference   366     1,067     2,939     462  
Comprehensive income (loss) (21,559 ) 67,418 (9,842 ) (1,548 )
Less: Comprehensive income attributable to non-controlling interests   18,892     17,298     10,298     1,620  
Comprehensive income (loss) attributable to Origin Agritech Limited   (40,451 )   50,120     (20,140 )   (3,168 )
 
Net income (loss) attributable to Origin Agritech Limited per share – basic RMB(1.77) RMB2.12 RMB(1.00) USD(0.16)
 
Net income (loss) attributable to Origin Agritech Limited per share – diluted RMB(1.77) RMB2.10 RMB(1.00) USD(0.16)
 
Shares used in calculating basic net income (loss) per share   23,013,692     23,189,464     23,072,895     23,072,895  
 
Shares used in calculating diluted net income (loss) per share   23,013,692     23,337,265     23,072,895     23,072,895  
 

 

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands)

 
   

 

 

Year ended September 30,
2009RMB   2010RMB   2011RMB   2011USD
 
Operating activities:
Net income (loss)

 

(40,817
)

 

49,053

 

(23,079
)

 

(3,630
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization 21,266 21,712 23,307 3,668
Loss (gain) on disposal of plant and equipment 457 (26 ) 6,252 984
Gain on disposal of an equity investment - (8,883 ) (1 ) -
Loss on liquidation of a subsidiary - - 13,583 2,137
Change in the fair value of embedded derivatives (3,300 ) - - -
Impairment on receivables 26 - 1,872 294
Inventory write down 7,395 14,971 12,978 2,042
Loss on repurchase of convertible note 51,101 - - -
Interest expense and amortization of discount on convertible notes 3,799 - - -
Deferred income tax assets 11,152 5,274 6,739 1,060
Non-controlling interests 18,892 17,298 10,298 1,620
Share-based compensation expense 2,760 4,868 4,638 730
Share of net income of equity investments (4,669 ) (9,370 ) (1,616 ) (254 )
Changes in operating assets and liabilities:
Accounts receivable, net (1,006 ) (4,356 ) 1,560 245
Due from related parties 3,538 1,897 (76 ) (12 )
Advances to growers 20,807 (16,010 ) (37,932 ) (5,969 )
Advances to suppliers - 2,940 (8,432 ) (1,327 )
Inventories 38,569 45,783 15,175 2,388
Income tax recoverable (28 ) (1,020 ) 590 93
Other current assets 2,444 98 4 1
Other assets 10,182 3,193 (3,010 ) (474 )
Accounts payable 6,014 (5,137 ) (3,220 ) (507 )
Due to growers (4,414 ) 32,567 (34,239 ) (5,388 )
Due to related parties 16,856 (7,773 ) 984 155
Advances from customers 81,159 128,834 49,136 7,732
Deferred revenues (16,568 ) 4,831 (3,299 ) (519 )
Income tax payable 602 4,414 4,113 647
Other long-term liabilities (3,658 ) 9,426 (7,003 ) (1,102 )
Other payables and accrued expenses   (13,676 )   4,020     8,135     1,280  
 
Net cash provided by operating activities   208,883     298,604     37,457     5,894  
 
Investing activities:
Dividends received 4,600 1,200 2,467 388
Purchase of plant and equipment (18,804 ) (15,839 ) (56,332 ) (8,864 )
Liquidation of a subsidiary - - (67,980 ) (10,697 )
Proceeds from disposal of an equity investment - 50,000 - -
Additional capital injection to an equity investment - - (600 ) (95 )
Proceeds from disposal of plant and equipment 1,395 247 - -

Deposits for purchase of acquired technology and land use rights
(2,650 ) (39 ) (1,280 ) (201 )
Deposits for purchase of plant and equipment (332 ) (3,044 ) (11,468 ) (1,805 )
Business acquisition, net of cash acquired - (10,540 ) - -
Purchase of intangible assets   (100 )   (6,880 )   (19,197 )   (3,021 )
Net cash provided by/(used in) investing activities   (15,891 )   15,105     (154,390 )   (24,295 )
 
Financing activities:
Restricted bank deposits (500 ) 500 - -
Proceeds from short-term borrowings 134,850 191,900 20,000 3,147
Repayment of short-term borrowings (219,440 ) (186,290 ) (85,900 ) (13,517 )
Repayment of third party loans (4,560 ) - - -
Repurchase of convertible notes (68,290 ) (117,896 ) - -
Acquisition of additional equity interest from non-controlling shareholders - (24,200 ) - -
Capital injection from a non-controlling shareholder - - 19,600 3,084
Dividends paid to non-controlling shareholders (17,993 ) (6,908 ) (12,090 ) (1,902 )
Proceeds from exercise of share options   -     6,535     2,654     418  
Net cash used in financing activities   (175,933 )   (136,359 )   (55,736 )   (8,770 )
 
Net increase (decrease) in cash and cash equivalents 17,059 177,350 (172,669 ) (27,171 )
Cash and cash equivalents, beginning of year 102,263 121,255 299,672 47,156
Effect of exchange rate changes on cash and cash equivalents   1,933     1,067     2,939     463  
Cash and cash equivalents, end of year   121,255     299,672     129,942     20,448  
 
Supplemental disclosures of cash flow information:
Income taxes paid   6     652     6,990     1,100  
 
Interest paid   11,574     8,539     1,469     231  
 
Supplemental disclosure of non-cash investing activities:
Other current assets to be received from liquidation of a subsidiary   -     -     45,236     7,118  

Copyright Business Wire 2010

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