Maximizing our annual revenue per mu and profit continues to be our key performance indicator. While production during the summer months would result in higher volumes but lower prices, production during the winter months results in lower volumes but significantly higher prices. As our labor, packing and transportation expenses are all strongly correlated to production volume, utilizing our production capacity for off-season (winter months) production, would maximize both revenue and profit margins.
A large positive net impact of biological assets fair value adjustment resulted in a strong increase in net profit for the period. The large net impact was due to the switch from low value leafy crops grown during the summer months to higher value solanaceous crops grown during the winter months. Our operating cash flow declined compared to last year as a result of lower revenue, higher inventory and plantation costs as we started the solanaceous production season and higher receivables.”
(1)Land under construction or reserved includes (i) newly leased land which has not yet been put into production and is either under construction or in reserve for future development, and (ii) land which we plan to return and is not in operation.
As of September 30, 2012, we had 3,919 mu of newly leased land and 699 mu of land which we plan to return.
(2)As of September 30, 2011, there were 710 mu bamboo-made greenhouses and 7,584 mu steel-made greenhouses.
As of June 30, 2012, there were 450 mu bamboo-made greenhouses and 8,465 mu steel-made greenhouses.
As of September 30, 2012, there were 450 mu bamboo-made greenhouses and 9,538 mu steel-made greenhouses.
Revenue decreased by 15.8%, to RMB86.8 million (US$13.8 million) for Q1 FY2013, compared to RMB103.1 million a year ago.The decrease in revenue was primarily due to more pronounced seasonality of our annual revenue.Land resting and sanitation was even more concentrated during the current quarter as we extended our solanaceous season to June 2012, as compared to April and May in 2011, as well as due to a larger proportion of solanaceous production compared to a year ago.The decrease in revenue was partially offset by more favorable product mix and better product quality on the land that was in production during the quarter, resulting in higher average selling prices.The more pronounced seasonality of our annual revenue resulted in a decrease in revenue-per-mu from RMB5,009 for the three months ended September 30, 2011 to RMB4,188 (US$666) for the three months ended September 30, 2012.
Cost of inventories sold decreased by RMB14.3 million, or 15.4%, to RMB78.7 million (US$12.5 million) for Q1 FY2013, compared to RMB93.0 million a year ago.
A reconciliation of adjusted cost of inventories sold to cost of inventories sold determined in accordance with IFRS is set forth in Appendix IV.
The net impact of the biological assets fair value adjustment represents the net increase or decrease in gain from fair value less costs to sell of crops on our farmland at the end of the reporting period compared to the end of the immediately preceding reporting period.
A net gain of RMB92.6 million was recognized arising from biological assets fair value adjustment for Q1 FY2013, as compared to a net gain of RMB68.2 million recognized a year ago.
The net gain of RMB92.6 million for Q1 FY2013 primarily arose from the transition from leafy to solanaceous products.As the leafy season ended and the solanaceous season started during the first fiscal quarter, most of the crops on our farm land as of September 30, 2012 were higher value solanaceous products, while most of the crops on our farm land as of June 30, 2012 (the immediately preceding reporting period end) were lower value leafy products, resulting in a positive net impact.
The larger positive net impact for Q1 FY2013 compared to that of a year ago was primarily due to (1) higher expected selling prices for products on our land as of September 30, 2012 compared to September 30, 2011 and (2) a larger area of solanaceous product planted as of September 30, 2012 compared to a year ago.
Our packing expenses increased by RMB1.0 million, or 17.6%, to RMB6.4 million (US$1.0 million) for Q1 FY2013, compared to RMB5.5 million a year ago, primarily due to an increase of RMB1.0 million in packing materials consumed, as a result of more sales to institutional customers.
Our land preparation costs increased by RMB5.7 million, or 50.7%, to RMB16.9 million (US$2.7 million) for Q1 FY2013, compared to RMB11.2 million a year ago, which was primarily due to (1) an increase in greenhouse coverage which increased the unit land preparation cost, (2) an increase in the amount of land in reserve or under construction due to new farm bases added, and (3) an increase in the area of land dedicated to solanaceous production, which led to an increase of land resting and sanitation and land preparation for planting in the month of August and September.
Our selling and distribution expenses decreased by RMB0.5 million, or 10.9%, to RMB4.4 million (US$0.7 million) for Q1 FY2013, compared to RMB4.9 million a year ago, which was primarily due to the offsetting effects of (1) a decrease of RMB0.6 million in salary and commission payments as we ceased our concessionary sales in Hong Kong and (2) an increase in transportation costs of RMB0.4 million.
Our administrative expenses decreased by RMB3.9 million, or 26.5%, to RMB10.9 million (US$1.7 million) for Q1 FY2013, compared to RMB14.8 million a year ago, primarily due to a decrease of RMB4.2 million in equity-settled share-based compensation.
As a result of the foregoing factors, profit for Q1 FY2013 increased by 16.1%, to RMB101.4 million (US$16.1 million) for Q1 FY2013, compared to RMB87.3 million a year ago.
Adjusted profit for the period decreased by 64.1% to RMB11.7 million (US$1.9 million) for Q1 FY2013, compared to RMB32.6 million a year ago.
Basic and diluted earnings per share were RMB4.44 cents (0.71 US cents) for Q1 FY2013.Basic and diluted earnings per ADS were RMB222.0 cents (35.32 US cents) for Q1 FY2013.
Our operating cash inflow decreased by 44.2 million, or 84.3%, to RMB8.2 million (US$1.3 million) for Q1 FY2013, compared to RMB52.4 million a year ago, primarily resulting from (1) a decrease of RMB33.2 million in cash received due to an increase in trade receivables balance from June 30, 2012 to September 30, 2012, as well as the decrease in revenue during the current period, and (2) an increase of RMB11.0 million in cash paid for our operating expenses and production cost, primarily due to an increase in inventory and plantation costs as of September 30, 2012 as we have commenced the solanaceous season.
Cash used in investing activities increased by RMB19.3 million, or 33.7%, to RMB76.5 million (US$12.2 million) for Q1 FY2013, compared to RMB57.2 million a year ago.The net cash outflow of RMB76.5 million for Q1 FY2013 was primarily due to (1) our payment for construction in progress and prepayments for construction works totalling RMB42.5 million, which mainly consisted of (a) payment for construction of greenhouses of RMB22.7 million, (b) payment of RMB12.9 million for agricultural infrastructure, and (c) payment for land improvements of RMB5.7 million, (2) our payment for the purchase of property, plant and equipment of RMB9.1 million, and (3) the increase in pledged bank deposits related to construction work of RMB25.0 million for bills payable.
The Company reviews the productivity and efficiency of the utilization of its resources for each of its existing farms on a regular basis.We have decided to dispose of farms with a total land area of 2,242 mu during the three-month period ended September 30, 2011. Up to September 30, 2012, we have transferred/returned a total land area of 1,543 mu.We are currently in the process of returning the remaining 699 mu of farm land to the landlords.
The Company re-affirms its previous revenue guidance and estimates that its revenue for the fiscal year ending June 30, 2013 will be between RM600 million and RMB630 million, representing a year over year growth rate for the 12 months ending June 30, 2013 compared to the 12 months ended June 30, 2012 of approximately 15.5% to 21.3%.This forecast reflects the Company’s current and preliminary view, which is subject to change.
The Company will host a conference call at 8:00 a.m. ET on November 28, 2012 (9:00 p.m. Hong Kong Time) to review the Company’s financial results and answer questions. You may access the live interactive call via:
Please dial-in approximately 10 minutes in advance to facilitate an on-time start.
A replay will be available for two weeks after the call and may be accessed via:
Le Gaga is a leading greenhouse vegetable producer in China. The Company sells and markets greenhouse vegetables such as peppers, tomatoes, cucumbers and eggplants, as well as green leafy vegetables to wholesalers, institutional customers and supermarkets in China and Hong Kong. The Company has successfully built a trusted brand among its customers.
The Company currently operates farms in the Chinese provinces of Fujian, Guangdong and Hebei. Leveraging its large-scale greenhouses, proprietary horticultural know-how and comprehensive database, the Company specializes in producing and selling high-quality, off-season vegetables during the winter months.
This press release contains statements of a forward-looking nature. These statements are made under the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, including certain plans, expectations, goals, and projections, which are subject to numerous assumptions, risks, and uncertainties. These forward-looking statements may include, but are not limited to, statements containing words such as “may,” “could,” “would,” “will,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “expect,” “intend” and “future” or similar expressions. Among other things, the management’s quotations and the Business Outlook section contain forward-looking statements. These forward-looking statements speak only as of the date of this press release and are subject to change at any time.These forward-looking statements are based upon management’s current expectations and are subject to a number of risks, uncertainties and contingencies, many of which are beyond the Company’s control that may cause actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. The Company’s actual results could differ materially from those contained in the forward-looking statements due to a number of factors, including those described under the heading “Risk Factors” in the Company’s final prospectus, dated October 28, 2010, filed with the Securities and Exchange Commission, and in documents subsequently filed by the Company from time to time with the Securities and Exchange Commission. Potential risks and uncertainties include, but are not limited to: the Company’s ability to continue to lease farmland or forestland; the legality or validity of the Company’s leases of agricultural land; risks associated with extreme weather conditions, natural disasters, crops diseases, pests and other natural conditions; fluctuations in market prices and demand for the Company’s products; risks attributable to our growth strategies, including increasing our greenhouse coverage, increasing our production scale, strengthening our sales, marketing and distribution efforts, focusing on high quality off-season products, improving our product mix, and expanding our research and development capability; risks of product contamination and product liability claims as well as negative publicity associated with food safety issues in China; risks of labor shortage and rising labor costs; the Company’s ability to comply with U.S. public accounting reporting requirements, including maintenance of an effective system of internal controls over financial reporting; and the Company’s susceptibility to adverse changes in political, economic and other policies of the Chinese government that could materially harm its business. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Further information regarding risks and uncertainties faced by the Company is included in its filings with the U.S. Securities and Exchange Commission, including its final prospectus, dated October 28, 2010.