Agria Corporation (NYSE:GRO)
Investor Conference Call
April 23, 2013 8:30 AM ET
Kean Seng U - Head - Corporate and Legal Affairs
Patrick Tsang - CFO
Good day and welcome to the Agria Corp Investor Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. Kean Seng U for opening comments. Please go ahead sir.
Kean Seng U
Thank you. Thank you everyone and we appreciate you taking the time to join today’s Agria Corporation’s Investor Update conference call. For those dialing in, you can download the presentation from the Investor Relations section of our website, www.agriacorp.com. Before management’s presentation, I would like to refer you to the Safe Harbor statements in conjunction with today’s conference call. This is shown in slide two.
This call will contain certain statements that address operating results, performance, events or developments that we expect or anticipate will occur in the future. These forward-looking statements include among other things, statements relating to our businesses, strategies and plan of operations, our capital expenditure and future funding plans, our operations and business prospects and the regulatory environment. The forward-looking statements are based on our current expectations and involve a number of risks, uncertainties and contingencies many of which are beyond our control and which may cause actual results, performance or achievements to differ materially from those anticipated. Should one or more of these risks or uncertainties materialize, or underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected.
Another factor that could cause actual results to materially differ includes among other things, our plans and objectives for future operations and expansion or consolidation, interest rate and exchange rate changes, the effectiveness of our cost control measures, our liquidity and financial condition, environmental laws and changes in political, economic, legal and social conditions in China, New Zealand, Australia and South America and other factors affecting our operations that are set forth in the company’s Form 20-F for the fiscal year ended June 30, 2012 and Form 6-K for the six months ended December 31, 2012, which we filed with the Securities and Exchange Commission on October 10, 2012 and March 13, 2013 respectively. And, in our future filings with
the SEC. unless required by law, the company undertakes no obligation to publicly update or revise any forward looking statements whether as a result of new information, future events or otherwise. (Inaudible), let's turn to the presentation following management discussion, you will have the opportunity to ask questions.
I would now like to turn the call over to my colleague Mr. Patrick Tsang, our Chief Financial Officer. Patrick you may begin.
Welcome everyone and thank you for joining us on the call today. I’m Patrick Tsang, the Chief Financial Officer of Agria. As most of you know, our half year results were released last month. We’re holding this call to review the first half results and discuss our outlook for 2013. We’ll be holding our annual general meeting in Hong Kong tomorrow and wanted to give investors that cannot attend the meeting an opportunity to listen to our presentation and ask questions of management.
Let us start with financial results for the six months ended December 31st, 2012 as shown on slide 3. Revenues are RMB 3 million or US$489 million equivalent, which was down 15% over prior period. However, operating income of RMB 38 million or US$6 million equivalent was up by 17% over prior period.
Revenue was down because of a change in the way PGW accounts holder delivery of second categories of rural supplies to its customers. PGW’s revenue for the retail business was not directly comparable to the same period last year. PGW accounts for these contracts as agency transactions and is now accounting only for the commission earned as revenue rather than recording the gross revenues and cost of revenues at the same time. This is obviously no change to the bottom line.
Also note that the 38 million of operating income excludes accounting charges related to the impartment loss on the land use rights and non-current prepayments of RMB 357 million or US$57 million, equivalent.
Now turn to slide 4, it highlights our major balance sheet items. Basic increase in our cash and cash equivalents at December 31st, 2012 to RMB 177 million or US$28 million equivalent from RMB 165 million at June 30th 2012. The restricted cash for the same period amounted to RMB 398 million or US$64 million equivalent were stretched against part of the bank borrowing of RMB 1.2 billion or US$197 million.
Moving on to operating highlights for the half year results, slide 5 gives a high level overview of our business structure, and then slide six starts with operating accomplishments at our majority owned subsidiary PGG Wrightson.
In the first half of the fiscal year most segments recorded sizeable gains, the New Zealand seeds, retail, wool and irrigation businesses were very strong. While Australia seeds struggled because the climatic conditions remain challenging, and the early onset of dry summer weather conditions curtailed late spring seed. Our South American seeds business grew modestly with Uruguay showing the most strength due to pasture seeds and crop protection. One other challenging segment is trading which was more susceptible to overall market conditions.
Moving onto slide 7, it provides greater detail into the China seeds business which grew sharply to RMB 31 million from RMB 8 million in the first half of the fiscal year. Both field corn and edible corn seeds grew rapidly. And we improved efficiency by consolidating production to Xinjiang province for field corn and Zhuhai for edible.
Related to our China seeds business, slide 8 reveals the impairment charge I mentioned earlier. You may recall that, we retained 13 from 5,000 acres of land, when we divested (inaudible), but it turns we are not able to develop that land properly. Grass plantation would not be economical and other purchase such as third party tenants or other uses do not look promising. Although we are providing impairment loss on this investment in compliance with US GAAP accounting standards, we will continue to detain the land use rights.
Slide 9, it outlines this disposal of a 49% equity interest in Wuwei Ganxin seeds, we've well received 40.7 million for this interest and are taking a loss of RMB 13 million on a sale.
Now let’s turn to the outlook which is on slide 10. Keep in mind that we Agria not simply as a China act play, but rather an international agricultural products company with operations in New Zealand, Australia and South America. We have numerous opportunities for both Agria-China and PGW to cross-sell each other’s products into our respective markets.
Furthermore, we now have the branding and (inaudible) to expand into additional international geographies. For guidance, we expect to now pitch up the business, to generate revenue of RMB 100 million, or US$16 million, for year ending June 30, 2013.
PGW is not providing specific guidance for the year ending June 30, 2013 due to inherent volatility associated with earnings for the six months ending June 30, 2013.
Slide 11 expands on the synergy opportunities between Agria-China and PGW. Many of PGW’s products especially seeds of course, can be sold into the China market, with limited arable land, the modern time in China for better seasonal royalties that can gain further yield.
Slide 12, summarizes our strategic direction. We are looking for M&A opportunities in new geographies, and we are building financing options to enable us to cease those opportunities. I will also now like to address the recent developments to December 31st. From those we have stabilized to manage the situation. I joined the company as CFO in mid-February and the company has named Mr. Alan Lai as Executive Chairman in March.
We continue to develop our marketing reach, mostly signing two memorandum of understanding with PRC Agricultural Partners in Guangdong province and Shandong province and one MOU with Yangling Agricultural Hi-Tech Industries Demonstration Zone in the Shaanxi province.
Recently, we have established a new research and development center in Shenzhen China to support company’s growing operations in China and in other growth markets. The new R&D facility is designed to develop advanced planting, and seed cultivation technology for new strengths of polished seeds, corn seeds and vegetable seeds.
Finally, we are actively improving our shareholder communications by hiring a prominent international investor relations front ICR. Further to demonstrate our commitment to enhancing shareholder’s value, our board has also authorized a share buyback initiative.
With that on behalf of Agria Corporation’s entire management team, I would like to thank all of our listeners this morning for your participation on this call. We will now open the call for Q&A from the audience. Thank you.
(Operator Instructions) And we will take our first question from Clarence Henry Roe (ph)
Yes, what are your intentions concerning your reverse split that you’ve published that you are considering earlier this year?
Kean Seng U
I think for the investors and the shareholders who have been with Agria for some time, you probably realize that since July last year, Agria was not in compliance with the New York Stock Exchange, $1 bit rule, so then that cure period has since January this year expired. So following our consultation and discussion with the council together with NYSE staff. the proposal that to consolidate and reverse share split was actually with a view to address that situation but we have since enough further update this morning with our further conversation with NYSE staff. It is now clear that we are in compliance with the $1 bit rule. So at tomorrow's AGM this resolution will authorize the Board to implement the reverse share spilt in some future time when the circumstances will require.
So that will be in future?
Kean Seng U
Yes, correct yes.
Actually it won't happen, any time soon.
Kean Seng U
It won't happen anytime soon.
How this (inaudible) also have been authorized to buy back some of your stock which should also improve the share price.
Kean Seng U
That's correct. That's one the initiative we have actually considered and I think the Board has approved after our discussions with NYSE stock.
We have no further questions at this time; we will turn the call back over to management for any closing remarks.
Kean Seng U
Thank you everyone for taking the time today to join Agria Corporation’s conference call. The company looks forward to updating you on its progress in the weeks and months ahead. Goodbye.
And that does conclude today's conference, we appreciate your participation, you may now disconnect.
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