Agria Corporation Q1 2008 Earnings Call Transcript

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 |  About: Agria Corporation (GRO)
by: SA Transcripts

Agria Corporation (NYSE:GRO)

Q1 2008 Earnings Call

June 26, 2008 8:00 am ET

Executives

David Pasquale, Senior Vice President

Kenneth Huang, Chief Executive Officer

Gary Yeung, Chief Financial Officer.

Frank Xue, President of P3A

Analysts

Brian Millberg – Piper Jaffray

Unknown Analyst – Credit Suisse

Bill Gilchrist – West Coast Capital Management

Bill Nasgovitz – Heartland Funds

Operator

Welcome to the Agria Corporation financial results conference call (Operator Instructions). It is now my pleasure to introduce your host, David Pasquale, Senior Vice President of Agria Corporation.

David Pasquale

We will be covering financial results for Q4 in FY2007 and Q1 ’08. We will have time for questions after a brief review of our results and outlook. Joining us today from the company are Mr. Kenneth Huang, CEO; Mr. Gary Yeung, CFO; and Mr. Frank Xue, President of P3A.

Before we begin the formal remarks, the company’s attorneys advise that today’s conference call contains forward-looking statements. These statements are made under the "Safe Harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995.

These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates," "confident" and similar statements. Among other things the business outlook and quotations from management on the call as well as the company’s strategic and operational plans contain forward-looking statements.

Agria may also make written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission on Forms 20-F and 6-K, etc., in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors, or employees to third parties.

Statements that are not historical facts, including statements about beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statement.

Potential risks and uncertainties include, but are not limited to Agria’s limited operating history which makes it difficult to evaluate our future prospects and results of operation; natural or man-made disasters could damage our seed production, which would cause us to suffer production losses and a material reduction of our revenues; outbreaks of disease in livestock and/or food scares in China which materially and adversely affect our sheep-breeding business.

We primarily rely on arrangements with village collectives to produce our corn seed products, and if we are unable to continue these arrangements or enter into new arrangements with other village collectives to increase our production, our total land acreage devoted to corn seed production may decrease, and our growth may be inhibited.

Our growth prospects may be materially and adversely affected if we are unable to continue to develop or acquire products to meet the demands of Chinese farmers or to produce our existing products in sufficient quantities; and one or more of our distributors may engage in activities that are harmful to our brand and to our business, and other risks outlined in Agria’s filings with the U.S. Securities and Exchange Commission, including its Form F-1/A filed on November 2, 2007.

All information provided on this call is as of the date of the call, and we undertake no obligation to update any forward-looking statement, except as required under applicable law.

In addition, several non-GAAP financial measures will be mentioned on the call. Information relating to the corresponding GAAP measures and a reconciliation of the non-GAAP and GAAP measures can be found in today’s press release on our website at www.agriacorp.com.

At this time, I would like to now turn the call over to CEO, Kenneth Huang.

Kenneth Huang

I want to thank all of you for your participation and support over the past few months. Our management team and the board spent a lot of time in the first part of the year on a couple of issues. With the recently announced resolution, we are moving ahead with considerable energy. Our strong Q4 and the full year 2007 results demonstrate the potential of our business.

Our core business segments remain very healthy, and Agria remains positioned to capitalize on growth opportunities in front of us. As part of our efforts, to sharpen our focus and improve corporate governance, we recently announced management changes. I am now the CEO overseeing day-to-day operations. Guanglin Lai who previously served as co-CEO and the Chairman will now serve solely as the Chairman. He will now focus on M&A efforts.

Finally, Frank Xue, who resigned as the COO of Agria in April, will continue to serve as the President of our important P3 subsidiary, and the agreement we have recently announced. Our management team and the Board are pleased to have this issue resolved.

Let me turn the call over now to the CFO, Gary Yeung, for a review of the financials.

Gary Yeung

I will try to provide highlights as our release provides detailed GAAP and non-GAAP tables for Q4 and full year 2007 and for Q1 2008. All numbers cited we will in RMB unless otherwise stated. Finally, you will note in our press release the impact of deferred income tax expense at the rate of 25%. This started in fourth quarter due to a change in the past law of our Beijing office initially having a six-year tax holiday as a classified high-technology enterprise. Three years at full extension and three years at half extension, but we lost the third extension status from 2008 due to a change in the past law.

Q4 ‘07 revenue came in at RMB 318 million as compared to RMB 149 million in the year ago period. Revenue by segment in Q4 was approximately 66%, 26%, and 8% of total revenue from our corn seed, sheep breeding, and seedling segments. This compared to approximately 65%, 29%, and 6% in the year ago period.

Net loss was RMB 42.3 million compared to net income of RMB 67.4 million in the year ago period. Without the impact of recognizing a deferred income tax expense of approximately RMB 158 million as noted early and excluding share-based compensation expense of 9 million in the fourth quarter of 2007, net loss for the fourth quarter of 2007 was RMB 33.3 million.

In the fourth quarter, gross margin was about 41%, 66%, and 75% in our corn seed, sheep breeding, and seedling segments respectively. For the fourth quarter 2007, basic and diluted loss per ADS was RMB 0.74 as compared to earnings of RMB 1.35 per basic and diluted ADS in the same period in 2006. Excluding share-based compensation expense of RMB 9 million in the fourth quarter of ‘07, diluted loss per ADS was RMB 0.58. Each ADS represents 2 ordinary shares of the company.

We will now turn to the full year result of 2007. Revenue for the year-end 2007 was RMB 671 million compared to revenue of RMB 490 million for the year 2006. As noted in our press release, revenue in our corn seed segment increased 40% for the full year 2007 primarily due to an increase in the sales of our proprietary corn seed at a higher average selling price. Revenue in our sheep-breeding segment increased by 33% for the full year 2007 due to the growth of our Primalights III hybrid sheep, combined with growth in the sales of our frozen sheep semen.

Revenue in our seedling segment increased 40% for the full year 2007, primarily due to increased sales of our date and white bark pine seedlings and the introduction of new seedling types. Basic and diluted earnings per ADS for the year 2007 was RMB 2.74 and 2.68 respectively as compared to RMB 5.08 per basic and diluted ADS for the same period in 2006. Excluding share-based compensation expense of RMB 13.3 million, diluted earnings per ADS were RMB 2.93.

Now, let me comment on the first quarter of 2008. Revenue for the first quarter of 2008 came in at RMB 140 million compared to RMB 119 million in the same period last year. Revenue from our corn seed segment in the first quarter of ‘08 increased by 10% year-on-year despite the impact of transportation issues caused by adverse weather conditions.

Revenue from our sheep-breeding segment declined 77% year-on-year in the first quarter of ‘08 due the centralization and technology updates of our sheep breeding operation. This effort was planned for Q1 because of seasonality in the breeding business. The November to February period is typically a recovery season where breeder sheep are given time to regain energy. Production typically then runs in full from March through October.

The P3A team expected the equipment to be installed in January. There was a delay in the arrival of the equipment which was further complicated by the bad weather condition during the installation process. That prevented the qualification process from moving forward with optimum results. The P3A team was forced to remove and reinstall the equipment and to restart the qualification process. The problems resolved, but did result in a longer than expected cessation of sales of frozen semen and embryos.

The technology update, equipment qualification, and centralization were completed at the end of May 2008, allowing the company to resume sales in its frozen sheep semen and embryo business in June. Separately, revenue from our seedling segment increased by 35% year-on-year primarily due to increased sales volume in this segment.

Net loss in Q1 was RMB 58 million compared to net income of RMB 51 million in the same period last year. The decline was primarily due to the RMB 65 million settlement between our shareholder, Brothers Capital Limited and the management of P3A. We disclosed this agreement earlier in our press release dated June 2, 2008.

Net income was also negatively impacted by the earlier mentioned issues in our higher-margin sheep-breeding segment. Please note the settlement between our shareholders, Brothers Capital Limited and the management team of P3A was a non-cash charge to Agria Corporation. Excluding the P3A settlement and the share-based compensation expense of RMB 8.5 million in the first quarter of ’08, non-GAAP net income for the first quarter of ’08 was RMB 15.1 million.

In terms of quarter one on a segment basis, revenue from corn seeds, sheep breeding, and seedling segments account for 89%, 4%, and 7% respectively of total revenues. Gross profit in Q1 was RMB 43 million as compared to RMB 58 million in the first quarter of ‘07. In the first quarter of 2008, gross margins were 29% and 86% in our corn seed and seedling segments respectively, while our sheep-breeding segment was at a gross loss position due to the above-mentioned issues.

For the first quarter of 2008, basic and diluted loss per ADS was 0.92, compared to earnings of 1.02 per basic and dilute ADS in the same period last year. Excluding share-based compensation expense of 8.5 million and the P3A settlement in the first quarter of ‘08, diluted earnings per ADS were 0.24. As noted earlier, the centralization and technology upgrade negatively impacted net income as well given that this is our most profitable business. As of March 31, 2008, Agria had cash equivalent of RMB 1.37 billion.

Finally, our plan is to file our 20-F with the SEC on time this Monday. This concludes my prepared comments.

Let me now turn the call back to our CEO, Kenneth.

Kenneth Huang

Actually, I look forward to P3 and Agria management will seek ways to expand in our three core segments. We are strategically diversifying in each segment as opportunities present themselves. We are also aspire to be active in M&A and plan to have increasing percentage of our growth coming from M&A. We are actively evaluating transactions as part of our routine business operations.

We recently announced the acquisition of two propriety corn seeds. This was an important transaction. First, this represents our first corn seeds for human rather than animal consumption. Secondly, the seeds give us an entry into a new and rapidly growing market in China. We look to acquire another 3 to 5 national seeds during in 2008. We are also making arrangements with certain farmers to have them produce seeds for us which we will resell through our distribution network.

From a strategic standpoint, we will focus on proprietary seeds and plan to stop sales of generic seeds by year-end. This is due to the low-margin profile in the highly competitive generic seed market. We believe there is an opportunity to differentiate Agria in the higher-margin proprietary seeds market, and we will focus on opportunities in this area. We may also look to the layer of corn seed segments and other opportunities like flax and cottonseeds that have steep demand in our current market, and we expect to benefit from it.

In sheep breeding business, we plan to add another 3000 breeder sheep in 2008 to our sheep breeding operation. We may also look to layer in cattle and other animal breeding business. Overall, we have considerable room for long-term growth.

In terms our prospective financial outlook for the full year 2008, based on preliminary sales orders received to date, Agria expects to generate total revenues in the range of approximately RMB 125 million to RMB 135 million for the second quarter of 2008, representing a year-on-year decline in the range of approximately 16% to 20% respectively.

For the full year 2008, we expect to generate total revenue in the range of approximately RMB 738 million to RMB 771 million representing year-on-year growth in the range of approximately 10% to 15% respectively. This forecast reflects Agria’s current and preliminary view which is subject to change and is expected to be back-end weighted through the fourth quarter due to the normal seasonality of our industry.

Operator, this concludes our comments. We can take any questions now.

Question-and-Answer Session

Operator

(Operator instructions) Your first question comes from Brian Milberg - Piper Jaffray.

Brian Millberg – Piper Jaffray

Can you discuss the 2007 Q4 sales and marketing increase in cost of 8 times what you had been running? The second issue is I am still not 100% sure on the tax issue. I thought that the 50% reduction was still part of the law. The sales and marketing was RMB 25.5 million in Q4, and that is 8 times what you had been running. Can you tell me what that increase in cost was?

Kenneth Huang

For these two questions, I may answer first the question of the tax issue and then come back to the question on the sales and marketing cost for Q4, between Q4 of ‘06 and Q4 of ‘07. In relation to the tax, as we mentioned, we recognized a deferred income tax expense starting from the fourth quarter of ‘07. This is mainly because of the change of law under US GAAP which requires the company to assume [inaudible] for 3 years full exemption, and the other three years, half exemption, but due to a change in law, they will be subject to 25% income tax rate, and under this scenario, when we are distributing cash to [inaudible] may be subject to income tax of 25%.

Brian Millberg – Piper Jaffray

What I hear you saying is to pull the cash out, in effect you would have to pay the 25% tax?

Kenneth Huang

Yes, only when we pull the cash out, but if you reinvest the cash in the operation to do the expansion and as long as we don’t pull the cash from VIE, we will not be incurring deferred tax expense. At the moment, we do not have any that are not payable.

Brian Millberg – Piper Jaffray

And the $159 is that approximately 25% of the $672 for the year of total sales?

Kenneth Huang

25% is applied to the net asset value of the VIE at year-end 2007, which is about $600 million. So 25% gives you about $150 million for ’07 the first time, but going forward, that tax will be significantly decreased.

Brian Millberg – Piper Jaffray

Will the tax be based on net income from now on or will it always be on the asset base?

Kenneth Huang

Because ’07 was a first-time change, we accounted for all the assets including all the retained earnings, but going forward, the impact will only be applied to the current year profit.

Brian Millberg – Piper Jaffray

Then the sales and marketing expense increase?

Kenneth Huang

The sales and marketing expense is mainly due to in ’07 we had some expense to maintain a long-term relationship with a customer. We had certain sales allowance due to the relationship with that customer, which resulted in an increase of over RMB 50 million in expense. In addition, the sales commission also increased in line with sales revenue, so we think it’s a one-time charge.

Brian Millberg – Piper Jaffray

Is this something that will happen every fourth quarter?

Kenneth Huang

At the moment, we don’t anticipate having to make this allowance to the customer.

Operator

Your next question comes from Inaudible - Credit Suisse.

Unknown Analyst – Credit Suisse

Can you give us some color on the trends of average selling price for the corn seeds and your sales volume for Q4 and Q1?

Gary Yeung

The average selling price of corn seeds from is not much changed from the previous quarter, and then from quarter to quarter from Q4 ’07 to Q1 ’07, the average selling price are similar because they are in the same selling season; however, in Q1, we do only 1% to 2% revision in selling price due to the weather, and then we offered somewhat slightly lower price to the customers to speed up the sales.

Unknown Analyst – Credit Suisse

For sheep breeding, can you provide more color on the technology upgrade and installation of new equipment? Do you need to do it every year or what is the frequency of this upgrading?

Frank Xue

At this time, we introduced advanced equipment, so we think for the next four to five years, we don’t need to upgrade the equipment. To your second question what is the benefit of installing new equipment, there are three major benefits. First of all, the new equipment will increase our production capacity. Secondly, it will improve the quality of the product. The third, it’ll increase the productivity, so those are the three major benefits.

Operator

Your next question comes from Bill Gilchrist - West Coast Capital Management.

Bill Gilchrist – West Coast Capital Management

Could you talk a little about the sheep breeding business and just try to help us quantify how much of an impact the second quarter is going to feel from this timeframe that you have to have this equipment installed and get is qualified and back up and running?

Kenneth Huang

From the June timeframe, we resumed the production of frozen semen, and from the third quarter, we will be full speed on producing frozen semen, and all the production will be back to normal, so that’s a lot actually to recover from the loss in the first half of the year, but we introduced new technology and new equipment, and we plan also to add another 3000 breeder sheep to production capability, so that’s our plan for the sheep breeding business.

Bill Gilchrist – West Coast Capital Management

What is the outlook assuming you get this business back up and running? Can you talk in corn seeds and sheep breeding what type of margin trend do you think you can see and what type of inflation impact are you looking at as we go into the second half of ‘08?

Kenneth Huang

Here’s our plan. For the corn seed segment, in the second half of the year, we plan to stop sales of generic seeds because that’s a low margin segment and because of the competition situation in the market. For the sheep breeding business, because of the mix, we resumed frozen semen production and sales, so the margin will improve compared to the first half of the year.

Operator

Your next question comes from Bill Nasgovitz - Heartland Funds.

Bill Nasgovitz – Heartland Funds

You gave us guidance on sales for the year. How about giving some guidance in terms of profitability?

Kenneth Huang

Sorry, we don’t give guidance on profitability.

Bill Nasgovitz – Heartland Funds

Well, you have in the past. Haven’t you?

Kenneth Huang

No, we haven’t.

Bill Nasgovitz – Heartland Funds

What is your target in terms of profitability? What margins do you think these businesses over the longer term can achieve?

Kenneth Huang

Let’s talk about the gross margin in the longer term. For the corn seeds business, the gross margin in the long term is 35-45%. That’s the longer-term gross margin for corn seeds. For the sheep breeding business, this really depends because it depends on the mix of your products, so we really cannot give you the range for the time being. For the seedling business, we don’t see a big change from before this year from the longer term.

Bill Nasgovitz – Heartland Funds

In the sheep business, this has been a very profitable business in the past, what has been the normal range?

Kenneth Huang

It really depends on the mix of product. Depends on how much of the sheep you fail and how much frozen semen you sell an how many embryos you have. You put it together, and this really changes your gross margins. In the longer term, the gross margin will drop a little bit, but not very much.

Bill Nasgovitz – Heartland Funds

You have a significant amount of cash on your balance sheet, and you talked about acquisitions. Could you tell us in general what the broad landscape looks like? Is it a good time to be an acquirer and what type of valuations are you seeing or what are your requirements in terms of making these acquisitions in terms of price to earnings or price to EBITDA or whatever you’re looking at?

Kenneth Huang

First of all, we look at the target. The target should be a strategic fit, and secondly we are looking for profitable targets that have the potential to grow with a good management team, so that’s the target we are looking for. We are looking for targets in corn seeds industry and also in the sheep breeding industry.

On the corn seeds side, we did approach several targets, and some targets really fit our requirements, so hopefully we can get one deal done as soon as possible. That’s our goal. On the sheep breeding business side, we also have several targets there, this has been ongoing, and we expect within this year, we can have a couple of M&A there. That’s the story.

Bill Nasgovitz – Heartland Funds

Would these acquisitions be dilutive to shareholders?

Kenneth Huang

No. They have to add value to the company. That is one of our conditions. We have to increase the company’s shareholder value. That’s our target.

Operator

Our next question comes from Inaudible with Credit Suisse.

Unknown Analyst – Credit Suisse

On the currency, can you confirm that [inaudible] are due in US dollars?

Kenneth Huang

Most of them.

Unknown Analyst – Credit Suisse

Any hedging activity you have undertaken to hedge your translation loss?

Kenneth Huang

We don’t have hedging activity at the moment for US dollars.

Operator

Your next question comes from Brian Millberg - Piper Jaffray.

Brian Millberg – Piper Jaffray

In the past, you’ve discussed how many acres you have under corn for your seed crop, and I’m wondering if you can give some color on how that’s expanding or where you’re moving with that as you move into more proprietary seeds.

Gary Yeung

This year actually we feel we have in excess of 27,000 acres of land, but we don’t actually to use so much land because we plan to stop selling generic seeds. So this year, based on our plan, we are going to acquire another couple of national seeds and we are going to contract farmers to produce seeds for us, and at the end of the year, we will collect this and resell through our distribution network.

Brian Millberg – Piper Jaffray

You’re not going to take control of any more land.

Gary Yeung

For the time being, this year, we don’t have plans.

Brian Millberg – Piper Jaffray

I had one question on the balance sheet on the interest costs. You have a fair amount of cash and yet interest cost is going up. Can you explain that?

Gary Yeung

The interest cost is mainly a loan followed by our P3A entities, and this loan will be fully repaid when it becomes due in 2008. I am not sure if you compared the interest cost with previous period against this period.

Brian Millberg – Piper Jaffray

Will there be interest through the entire year of 2008?

Gary Yeung

The entire interest is mainly due to before the company going public [inaudible] in Beijing which required $30 million US capital infusion, and that amount of borrowed from one of our shareholders, and then we incurred most interest expense in the past year on that loan, and the shareholder’s loan was fully repaid in November after our successful IPO.

Brian Millberg – Piper Jaffray

The interest will occur for the rest of 2008, but not 2009.

Gary Yeung

Yes, if our loan is fully repaid in 2008. Now the loan remains only in the balance sheet of 2007. It’s only about RMB 14 million. If we fully repay it and we don’t forward the loan term, we will not have significant interest expense any more.

Brian Millberg – Piper Jaffray

Can you give us some sense of this new equipment that you put in the sheep breeding facility? Can you give us some sense of the CapEx that was required for that?

Frank Xue

Around RMB 3 million.

Operator

Your next question comes from Bill Gilchrist - West Coast Capital Management.

Bill Gilchrist – West Coast Capital Management

Gentlemen, following up on Bill’s question about the sheep breeding business line, can you talk about what is the current mix of frozen semen embryos and breeder sheep sales now and where you think these go over the next couple of years? I am assuming you have some control over what products you’re going to be emphasizing based on the margin that you get. Any color?

Kenneth Huang

In the sheep breeding segment, frozen sheep semen is our largest sales mix, and then second is our breeder sheep and then the sheep embryo accounts for the least sales mix in this segment, and this proportion should be the same after our sheep breeding tender is complete and then the sales of frozen sheep semen resumes, and frozen sheep semen normally accounts for more than half of the total segment.

Bill Gilchrist – West Coast Capital Management

Putting it altogether, if you’re saying that on a go-forward basis, once you get down with that and your breeder sheep and see the increased production of this new equipment and stuff that you brought on in the first quarter of ’08 and second quarter of ’08, you’re going to have a similar type of mix. Can you clarify a little bit why margins will drop a little bit on a long-term basis in this business? It sounds like it’s not solely due to mix.

Frank Xue

In the longer term, the product mix and the proportion of the three products may change. This depends on the Chinese Government policy that changes and secondly this depends on our strategy. Based on the market change, we may change our strategy. Thirdly it depends on which product makes more profit for us. Fourthly, it depends on the technology development.

So generally speaking, this year, we don’t foresee any big changes in profits, but we see that in the longer term, we may change our product mix, but this really depends on market competition situation. We will see with time going on with the market change how we change the product mix, so that’s why we are saying ‘probably,’ because now we are the biggest frozen semen supplier in China, but in the future, more competitors can jump into this market, so sheep semen business profits may go down, but not very much

Bill Gilchrist – West Coast Capital Management

Can you talk and clarify the sales and marketing bump up in the fourth quarter that Brian Millberg was talking about? Can you just repeat why that went up and why it’s a one-time type of expense?

Kenneth Huang

Let me give you the clarification. At the end of 2007, [inaudible] came together and discussed a market development strategy, so that’s why we spent the money on that. We did do some work with them and we had some consulting fee, so that’s why you see the marketing expense increase.

Bill Gilchrist – West Coast Capital Management

You’re not going to hold the same conference to recognize your distributors annually.

Kenneth Huang

This is the first time we’ve hosted this kind of a meeting. We’re going to evaluate the results this year. If the results are not very good, we’re not going to have the meeting at the end of this year. We just finished the meeting for last year, so we’ll see the results first.

Bill Gilchrist – West Coast Capital Management

The last thing I wanted to see if you could provide some clarity around is you’re looking for a major step-up at least in the revenues for the second half of ’08, and I can understand the sheep breeding business getting back on track here with these equipment installed and ready to go, but can you talk at least mix-wise between corn seeds, seedling, and sheep breeding? What that mix will look like in the second half or what type of growth rate to think about for the different business lines?

Kenneth Huang

Are you talking about additional market or what?

Bill Gilchrist – West Coast Capital Management

I’m talking about for your three primary segments, corn seeds, and sheep breeding, and seeding, if you can just provide some more colon as to what the growth rates for those businesses will look like to help us understand how you see them getting back up.

Kenneth Huang

We discussed that in this year our corn seeds business will increase more. For the sheep breeding business, compared to ’07, we’ll decline because of the loss of almost the first half of the year. For the seedling business, we don’t expect much growth.

Bill Gilchrist – West Coast Capital Management

All your growth for basically ’08 is going to be contingent upon the corn seed business?

Kenneth Huang

Right.

Operator

Your next question comes from Bill Nasgovitz - Heartland Funds.

Bill Nasgovitz – Heartland Funds

I see your stock is bid $4.90, let’s call it $5 right now. That’s about $1.92 over cash per share, versus your IPO price of $16 or $16.50, I can’t remember. In any case, what do you think about repurchasing stock with some of your cash today, with your stock selling at such a dismal price and less than $2 above cash?

Kenneth Huang

For the time being, we don’t have plans to repurchase our own stock now.

Bill Nasgovitz – Heartland Funds

Why not?

Kenneth Huang

Because we see a lot of opportunities in China, so we prefer to spend money for growth.

Bill Nasgovitz – Heartland Funds

You don’t think your stock represents competitive value versus acquisitions in the private or public market place.

Kenneth Huang

We see so many opportunities for growth, so we think the strategy is we have to spend money on growth.

Bill Nasgovitz – Heartland Funds

Well, I urge you to consider both. By the end of the week, the stock might be $4 again, and with $195 million in cash, you could pick up a million shares for the paltry sum of $5 million, which could be about 2.5% of your cash. Ten percent of your cash, or $19-$20 million, you could pick up 4 million shares of your NASDAQ traded stock. I urge you and the board to consider stock repurchase. It seems like a competitive alternative to overpaying for unknown management and the risk of making acquisitions.

Gary Yeung

When the opportune time comes, the Board will discuss this.

Operator

Your next question comes from Brian Millberg - Piper Jaffray.

Brian Millberg – Piper Jaffray

On your proprietary seeds, do you have any sense of what your yield would be per acre or per hectare? What are you telling farmers?

Gary Yeung

We have different proprietary seeds. There are some that are early mature type and some seeds that have really high yield. For the early mature proprietary corn seeds, it’s around 5000 to 6000 kg per hectares.

Operator

At this time, there are no further questions.

Kenneth Huang

Thank you for joining us today. Have a good day.

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