Beijing, China – August 27, 2008 – 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 third quarter ended June 30, 2008. Origin prepares its financial statements in accordance with generally accepted accounting principles (GAAP) of the United States.
Financial Results Overview
During the third quarter of fiscal 2008, the Company generated revenues of RMB 490.71 million (US.54 million), an increase of 7.73% from revenue of RMB 455.49 million (US.84 million) for the three months ended June 30, 2007. This was mainly due to a 6.2% increase in the average sales price of our products across all seed types with volumes also increasing 2.2%.
Corn revenues increased 7.75% year-over-year to RMB 366.04 million (US.37 million) from RMB 339.72 million (US.63 million). This was mainly due to a 10.25% increase in the average sales price of our products across corn seed types.
Gross margins for the third quarter improved to 29.36%, as compared to 23.91% achieved during the third quarter of 2007 caused by an increase in the average selling price.
Total operating expenses for the three months ended June 30, 2008 were RMB 45.71 million (US.66 million), a decrease of 7.79% from RMB 49.58 million (US.51 million) in the same period of the prior year. The decrease was mainly due to the effective internal controls over daily operating costs and expenses.
- Selling and marketing expenses were RMB 16.82 million (US.45 million) for the third quarter of 2008, representing a decrease of 7.95% from RMB 18.27 million (US.40 million) for the same period of the last year, which was mainly due to the decrease in advertising expenses. Our marketing focus this year consisted mainly of setting up more effective and cost efficient field demonstration lots, and eliminating our spending on advertising and other media expenditures.
- General and administrative expenses of RMB 19.06 million (US.78 million) for the third quarter ended June 30, 2008, decreased 4.29% from RMB 19.92 million (US.62 million) for the three months ended June 30, 2007 due to an effective control over daily operating costs and expenses, which should continue to take further effect over the next 3 quarters.
- Research and development expenses during the quarter were RMB 9.83 million (US$ 1.43 million), as compared with RMB 11.39 million (US$ 1.50 million) for the three months ended June 30, 2007. R&D expenditures decreased slightly this quarter, but it has increased for the nine-month period as a result of the increased build out of our in-house biotechnology center at our Beijing headquarters. We expect to continue building our capabilities in an efficient, cost effective manner.
Income from operations for the third quarter of 2008 amounted to RMB 98.38 million (US$ 14.34 million) compared with an operating income of RMB 59.35 million (US.80 million) in the same period in 2007 reflecting a 65.77% increase year-over-year.
Interest expenses for the third quarter of 2008 were RMB10.31 million (US.50 million), representing an increase of 145.29 % from RMB 4.20 million (US.55 million) for the three months ended June 30, 2007, which was primarily attributable to the inclusion of the interest expenses on the convertible debt of RMB 5.51 million (US.80 million) in the third quarter of 2008.
Net income for the third quarter of 2008 rose by 62.98% to RMB 60.12 million (US$ 8.77 million), as compared to net income of RMB 36.89 million (US.85 million) in the same period a year ago. Earnings per share on a fully diluted basis were RMB 2.62 (US.38), as compared to RMB 1.50 (US.20) per diluted share in the same period one year ago, reflecting a 74.67% year-over-year increase.
As of June 30, 2008 and September 30, 2007, Origin’s balance sheet included cash and cash equivalents of RMB 334.66 million (US.79 million) and RMB162.31 million (US.66 million), respectively. Investments in US Government Agency bonds amounted to RMB 12.57 million (US.83 million) and RMB 133.97 million (US.88 million), respectively. Net working capital amounted to RMB 285.96 million (US$ 41.69 million) and RMB 294.98 million (US.37 million), respectively. Total shareholders’ equity increased to RMB 332.38 million (US.46 million) as compared to RMB 296.92 million (US.63 million) for September 30, 2007.
As the Company moves beyond the 2007 transition year, the average prices, exclusive of scrap sales, have rebounded and increased year-over-year by approximately 6.2%. Volume has also increased 2.2%. In addition to the growth due to the reversal of industry factors, the Company has also streamlined its marketing efforts. The lower sales and marketing expense was due to a focus on more effective on-site demonstration lots for the Company??s customer base, yielding higher average price and volumes. The Company intends to increase its efforts in this regard, by doubling the demonstration lots in FY2008 from 5,000 to 10,000 in FY2009.
Origin also entered into a Notes Repurchase Agreement on July 28, 2008 with Citadel Equity Fund Ltd. providing for the repurchase by the Company from Citadel of a portion of the Company??s outstanding 1% Guaranteed Senior Secured Convertible Notes due 2012. The Note repurchase provides Origin with the opportunity to increase equity shareholder value while providing flexibility to its operations as well as fund its GMO development through internally generated resources.
GMO Pipeline Update
During the quarter, Origin submitted to the Ministry of Agriculture (MOA) its final application and all related documents regarding the Phytase corn product. The Company is hopeful a final decision will be rendered before the end of this year. Upon approval, the product would be able to be sold into the Chinese marketplace. This would mark the first GMO corn product approved for commercialization in China.
Origin expects that total revenues for the year ending September 30, 2008 will approximate US – US million. Net income for the year ending September 30, 2008 will approximate US.5 – US.0 million.
The net income figure is inclusive of roughly US$ 2.65 million dollars in non-cash interest expense from our convertible debt offering. Excluding this non-cash expense, the adjusted net income range would be US.0 to US.5 million. The Company plans to release guidance for 2009 by FY08 year end.
Management will conduct a conference call on Thursday, August 28, 2008 at 9:00 am Eastern Daylight Time to discuss these results. A question and answer session will follow management’s presentation.
To participate, please call the following numbers 10 minutes before the call start time and ask to be connected to the Origin Agritech conference call: +1-877-407-9210 (North America) or +1-201-689-8049 (International). In addition, the conference call will be broadcast live over the Internet at: www.originagritech.com.