Good evening ladies and gentlemen. This is Luke. I’m the operator for this evening's Conference Call. . Welcome everyone to Le Gaga Holding Ltd. Earnings Conference Call for the announcement of its financial results for the six months ended December 31, 2013. All lines have been placed on mute to prevent background noise. After the presentation, there will be a Q&A session. (Operator instructions) As a reminder, this conference call is being recorded. A live webcast and replay of this conference call will be available on Le Gaga’s website at www.legaga.com.hk. You can also download the results presentation from the Company’s website.
Now, I’d like to now transfer the call over to the moderator for this teleconference, Mr. Henry Chik of PR China.
Thank you, Luke. Good evening, ladies and gentlemen. Thank you for participating in Le Gaga Holdings Ltd.’s earnings call for the six months ended December 31, 2013. With me today is Mr. Auke Cnossen, Le Gaga’s CFO. This conference call will be conducted in two sessions. In the first session, Auke will give opening remarks and reveal the Company’s results for the first half along with update on the business strategy and guidance. After that in the second session we will start the Q&A session.
Before we proceed, I’d like to remind you that the discussion today will contain forward-looking statements. Forward-looking statement include those regarding Le Gaga’s anticipated future operating results. Le Gaga’s businesses involve a number of inherent risks and uncertainties. As such, actual results may be materially different from the view expressed or anticipated results described today.
A number of potential risks and uncertainties are outlined in the Company’s public filings with the U.S Securities and Exchange Commission. Le Gaga does not undertake any obligation to update any forward-looking statement except as required by applicable law.
On the call today we’d also like to mention that non-IFRS financial measures will be used during the discussion of the Company’s performance. Reconciliation of those measures to comparable IFRS information can be found in our earnings release.
Now, I’d like to turn the call over to Auke Cnossen. Auke, you may start now.
Thank you, Henry. Good evening, everyone. This is Auke Cnossen. Thank you for joining us today for the earnings announcement for the six months ended December 31, 2013. We spend a lot of effort during August, September, and October preparing for the upcoming solanaceous season. Planting of solanaceous products commenced at the end of August in Fujian, and in Guangdong. Guangdong was delayed by 20 to 30 days compared to last year due to the typhoon Usagi, which hit our Guangdong farm bases in September.
We have also spent much effort on the conversion of part of our greenhouse area to soil-less production systems, which we started in May 2013. As of December 31, 2013, we’ve 2,257 mu of greenhouses fit into the solanaceous production system.
Sales were more evenly spread out during the period as compared to last year when most of our sales revenue generated towards the end of the period, when prices typically are higher. This resulted in lower average selling prices, but better operating cash flow as our trades receivables balance was lower at the end of December 2013 as compared to the previous period.
Our net profit for the period was affected by a loss of RMB62.6 million recognized as a result of the damage related to typhoon Usagi at our Guangdong farm bases.
Our performance in the first six months of fiscal year 2014 continues to be affected by the overall slowdown of the Chinese economy and lower government spending which resulted in significantly lower market prices. The milder weather in particular in South China further contributed to lower market prices. Although production volume increased the much lower market prices resulted in lower revenue. Now let me walk you through our financial results.
First of all, we should remind you that our presentation will focus on the year-on-year comparisons unless otherwise specified. Revenue for the period decreased by 5.3%, RMB179 million from a year-ago. The decrease in revenue was primarily as a result of lower average selling prices. The shift to soil-less production which resulted in some operational disruption as well as lower production of leafy vegetables during the summer months as our soil-less greenhouses are not suited for leafy production further contributed to lower revenue. Lastly production of cruciferous products in Hebei province was lower due to a shortage of labor at our farms in Northern China.
Our selling prices in the PRC decreased year-on-year to RMB3.26 per kilogram for the period. The lower average selling price was primarily due to the overall lower market prices as a result of relatively mild weather across China between July and December 2013 as well as lower demand from restaurants. Further more to go of solanaceous products in the new soil-less production system was much faster than expected and as a result we had to harvest earlier in the off season and prices were still relatively low.
Our revenue per mu decreased at the shift to more solanaceous products resulted in more seasonality with more harvesting in the months of January through May and less in the months of November and December. As of June 30, total arable land was 29,404 mu or 1,960 hectares, an increase of 72 mu compared to June 30, 2013 and an increase of 961 mu from a year ago. Total greenhouse area was 11,833 mu, 789 hectares, 830 mu decrease compared to six months ago as we added 640 mu of new greenhouses, but rolled off 770 mu of greenhouses which were destroyed by the typhoon.
During the period, we recorded an accounting profit of RMB98.2 million. If the net impact of biological assets, fair value adjustment, non-cash share based compensation and natural disaster loss were excluded, adjusted profit for the period would have been RMB23 million. A positive net impact of RMB139 million was recognized arising from biological assets fair value adjustment for the period compared to the net impact of RMB128 million for the same period last year. The large positive net impact was due to the start of the solanaceous production cycle on most of our farmland and thus an increase in area planted with high-value solanaceous crops in our greenhouses at the end of December as compared to the end of June.
Adjusted EBITDA for the period was RMB84.1 million representing an adjusted EBITDA margin of 47% which was similar to last year. Adjusted EBITDA has excluded the net impact of biological assets fair value adjustment, non-cash share based compensation, and natural disaster loss. Basic and diluted gain per ADS was US$36.9 for the period.
Now let’s take a look at our cost. Cost of inventory sold for the period increased by 8.1% to RMB155.1 million. If the biological assets fair value adjustments were excluded, adjusted cost of inventory sold would have been RMB79.3 million, up 15.2% from the same period last year. Adjusted cost of inventory sold as a percentage of revenue increased to 44.2% for the period, up from 36.3% for the same period last year. The increase was primarily due to the lower selling prices as well as high depreciation.
Packing expenses for the period decreased by 3% to RMB14.1 million primarily due to a decrease in labor cost as a result of a better product mix as solanaceous product is less labor intensive than leafy vegetables.
Land preparation cost for the period decreased slightly to RMB35.9 million. The increase in greenhouse area increased the unit land preparation cost but this was offset by a larger area of greenhouses and land in operation as compared to the previous year.
Selling and distribution expenses for the period increased by 1% to RMB11 million. Administrative expenses for the period decreased by 18% to RMB18.8 million primarily due to lower share auction expenses. Our operating cash flow for the period increased by 32% to RMB78 million. This was primarily a result of a decrease in trade’s receivable balances.
As of December 31, 2013 we had US$36 million cash on hand. Looking ahead due to the conversion of a substantial area of greenhouses to a soil-less production system we expect our revenue per mu to drop slightly as a result of operational disruption. We estimate that, that revenue for the fiscal year ending June 30, 2013 will be between RMB585 million and RMB625 million.
We encourage investors to look at our company on a long-term basis as our operating results in each period are impacted by the different mix of products produced in each period. Consequently, in evaluating our overall performance, we pay most of the attention to metrics such as revenue per mu, adjusted profit and cash flow.
With that, we conclude today’s briefing and I will now transfer the call back to Henry for the Q&A session.
Thank you all. This concludes the prepared remarks for today. We are happy to take your questions now. Luke, we’re ready for questions.
Thank you, Henry. We will now begin our question and answer session. (Operator Instructions).
While waiting for questions, Auke do you have additional remarks for investors?
I think we covered everything in the earnings release. If there’s no further questions, people we can terminate the call. People can contact us at the phone number and email address listed on our website.
Okay. Maybe we can wait for a few minutes and then we’ll terminate the call.
If there’s no further questions; this will conclude our call. If you have any additional questions please feel free to contact Auke Cnossen at 852-3162-8585 or email him at email@example.com. Thank you all again for your participation and have a nice day. Thank you very much.
[No Q&A for this event]
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