BEIJING–(BUSINESS WIRE)–January 18, 2011–Origin Agritech Limited (NASDAQ: SEED) (“Origin” or the “Company”), a vertically–integrated supplier of hybrid and genetically modified crop seeds in China, today announced unaudited financial results for the year ended September 30, 2010. Origin plans to file its audited financial statements in conjunction with the annual report next week on Form 20-F with the SEC on January 27, 2011. These unaudited year end results reflect the Company’s financial statements during the period from October 1, 2009 to September 30, 2010. Origin prepares its financial statements in accordance with generally accepted accounting principles (GAAP) of the United States.
China’s Seed Industry: Growth and Prosperity for 2011
Fiscal year 2010 showed significant progress again toward improved industry conditions. The seed industry is beginning to enter the early phases of a consolidation period, in which we believe the next 3 to 5 years will have increased opportunity. These upcoming years should make the period of change and development in the industry. The fiscal year end September 30, 2010 marks the third consecutive year of improvement in our earnings as a result of these improving industry conditions.
With the rapid growth in China prompting greater demands on domestic food production, and China rapidly becoming a net corn importer, as a result of the rising consumer desire for higher quality food products, the Chinese central government has taken several measures to deal with these core issues. Seed is the fundamental input in the corn industry, and the input which possesses the greatest future upside in gains from biotechnological improvements. According to research, corn seed plays the most active factor in the increase of yield gains, accounting for over 35.5% of the total contribution.
During the past years, the Chinese central government initiated a comprehensive US billion plan for the implementation of genetically modified food products throughout China. In 2010, they furthered this plan through further implementation, including the approval of the first genetically modified main crop seed in rice and corn. Compared with conventional varieties, the obvious advantages of transgenic varieties are high yield, high quality, disease-resistance, and herbicide resistance. Farmers plant transgenic varieties to both save time and cost, while also reducing the amount of fieldwork. Given our unique position with our late stage product pipeline, we believe we are the beneficiary of such emerging trends affecting our industry for the next decade.
UPDATE OF ORIGIN GM PROGRAM
China’s First GMO Maize: Phytase Corn Approved
We have pursued genetically modified research, and in November 2009, we received the Bio-Safety Certificate from the Ministry of Agriculture as a final approval for commercial use of the world’s first genetically modified phytase corn. This is the first genetically modified corn seed product in China. We are also actively pursuing the approval of other GM seed products including glyphosate resistant corn and Bt Corn. Our focus remains in the production of higher quality seed products, whether proprietary or licensed.
Glyphosate Tolerance and Bt in Later Stages
Glyphosate tolerance has passed the intermediate testing phase (Phase 2) and entered the environmental release testing phase (Phase 3). The company expects this product to be this to be the following product commercialized after Phytase, and expect potential news of entrance into Phase 4 during 2011. Tests of our hybrid have performed exceedingly well as the plant has been able to effectively breakdown over 6x concentration of standard doses of glyphosate applied directly to hybrid. This glyphosate tolerance gene is able be stacked with the Bt gene. Introduced in the US in 1998, the use of glyphosate resistant corn grew from 950,000 acres in 1998 to 2.3 million acres in 1999 to 41 million acres by 2007, or at a compounded annual growth rate of 51.9%, according to the US Department of Agriculture. The rapid historical adoption rate indicates farmers find this trait to extremely valuable. The high level of adoption of these crops by farmers has also caused the reduction in value of the remaining herbicide market.
Since their introduction in 1996, over 75 million acres of genetically engineered glyphosate-resistant crops have been planted, making up 46% of the corn, 80% of soybean acres, and 70% of cotton acres in the US. These genetically engineered crops have been adopted by farmers because they are perceived to offer significant economic benefits over conventional crop and herbicide programs. The adoption of glyphosate-resistant crops has reduced costs for US farmers an estimated .2 billion. On the basis of recent adoption rates by growers around the world, it appears that glyphosate-resistant crops will continue to grow in number and in hectares planted.
Pest Resistance (Bt Corn)
Pest resistance (Bt Corn) has passed the intermediate testing phase (Phase 2)and entering the environmental release phase (Phase 3). In these phase 1 and 2 trials, these traits continue to perform as the best performing traits for pest resistance throughout China.
Bt crops produce a protein toxic to specific insects used in areas with high levels of infestations of targeted pests. Bt cotton, which controls varieties of the budworm and bollworm, was planted on 59 percent of U.S. cotton acreage and over 75 percent of the Chinese cotton acreage in 2010. Introduced in 1996 in the US, acreage of Bt corn has grown from 3.6 million acres in 1999 to 44 million acres by 2007, or at a compounded annual growth rate of 36.7%, according to the US Department of Agriculture. This Bt corn variety was planted on 49 percent of U.S. corn acreage in 2007.
ORIGIN’S GM PIPELINE
|CURRENT STATUS||2011 Potential||Commercialization|
|PHYTASE||Market and Product||Minor Market|
|GLYPHOSATE TOLERANCE||Phase 3 Approval||Phase 4||2013-2015|
|LICENSE RIGHTS||Worldwide Rights||2011+|
|BT||Phase 2 Approval||Phase 3||2015-2016|
|LICENSE RIGHTS||Worldwide Rights||2011+|
|NITROGEN EFFICIENCY||Phase 1||Phase 2||2016+|
|DROUGHT TOLERANCE||Phase 1||Phase 2||2016+|
|*through limited potential end product sales|
Long Term GMO 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.
Worldwide, the largest segment of the transgenic crop market has been herbicide resistant crops. Specifically, glyphosate resistant crops have been widely accepted in cotton, corn, and canola in North America. Introduced in the US in 1998, the use of glyphosate resistant corn grew at a compounded annual growth rate of 51.9%, according to the US Department of Agriculture. The rapid historical adoption rate indicates farmers find this trait to extremely valuable. The high level of adoption of these crops by farmers has also caused the reduction in value of the remaining herbicide market. Bt crops produce a protein toxic to specific insects used in areas with high levels of infestations of targeted pests. Introduced in 1996 in the US, acreage of Bt corn has grown at a compounded annual growth rate of 36.7%, according to the US Department of Agriculture.
FY 2010 Accomplishments
- Acquisition of Shandong Kunfeng Biochemical Limited, a company specializes in production of agricultural chemicals, and possesses an integrated chemical production facilities in China, and owns 38 product certifications.
- Divestment of our minority stake in Shenzhen Biocentury Transgene (China) Limited (“Biocentury Transgene”) for RMB 60M
- Increase in the majority interest in our subsidiary, Jilin Changrong Hi-Tech Seed Company Limited.
- Reach Worldwide Agreement for Licensing Right to Novel Bt Gene
- Received Prestigious National Agricultural Industrialization – ‘Leading Enterprise’ Status
- Continued Market Development of World’s First Phytase Maize.
FY 2011 Expectation
- FY 2011 Revenue Guidance: RMB 600 million to RMB 650 million
- Further growth of the pesticide product line, increase of gross margins over 20%
- Further development in our GM product pipeline
- Further development of our worldwide licensing rights for Bt Gene
- Further development of our worldwide licensing rights Glyphosate Tolerance Gene
- Development of complementary product lines
Liang Yuan, President and Chief Executive Officer of Origin Agritech, commented, “We remain excited of the positive growth trends illustrated by results for the fiscal 2010 year period ended September 30, 2010. While most other industries remain uncertain, we show positive signs of significant improvement in both our top-line and bottom-line numbers. As expected, our financials for the fiscal 2010 period ended September 30, 2010 showed significant margin, net income, and operating cash flow improvements from the fiscal year ended September 30, 2009 in light of our aggressive product management. As the market trends more towards technology based products, we have managed our R&D and operations in anticipation of bringing higher quality products to the market.”
UNAUDITED FINANCIAL RESULTS OVERVIEW
Revenues & Gross Margin
Our revenues for the year ended September 30, 2010 were RMB584.86 million (US.28 million), a slight decrease of 1.29% from September 30, 2009 with RMB592.49 million (US.76 million). Inclusive of any currency changes, based on US $, the year over year increase in revenues to US .28 million from US .76 was 0.60%.
The revenues resulting from non-scrap seed sales for the year ended September 30, 2010 as compared to that of the year ended September 30, 2009 were as follows:
|Hybrid Corn seeds*||421,420||411,405||49.65||%||40.60||%|
|Hybrid Rice seeds*||82,375||125,135||36.96||%||16.5||%|
|Hybrid Cotton seeds*||11,883||9,917||35.76||%||49.9||%|
|Hybrid Canola seeds*||38,106||42,747||63.05||%||41.99||%|
|Total normal sales*||573,885||589,272||47.15||%||35.6||%|
* exclusive of scrap sales
Cost of Revenue
Our cost of revenue for the year ended September 30, 2010 was RMB353.59 million (US.77 million), a decrease of 9.99% from September 30, 2009 which was RMB392.84 million (US.53 million), asconsistent with the decrease in sales volume.
Our gross profit for the year ended September 30, 2010 increased to RMB231.27 million (US.51 million), an increase of 15.81% from September 30, 2009 with RMB199.70 million (US.24 million), given the increase in corn seed prices.
Statement of Cash Flow
Forward Looking Statement
Origin Agritech Limited
Irving H. Kau, +011 86 136 8108 0243
Acting Chief Financial Officer