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Agria Corporation (GRO)
Q2 2008 Earnings Call Transcript
August 12, 2008 8:00 am ET
David Pasquale – SVP
Kenneth Huang – CEO
Gary Yeung – CFO
Brian Millberg – Piper Jaffray
Bill Nasgovitz – Heartland Advisors
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Thank you, operator. Welcome everyone to today’s call. We’ll be covering financial results for the second quarter 2008. We’ll have time for any questions after a brief review of our results and the outlook. Joining us today from the company are Mr. Kenneth Huang, CEO; and Gary Yeung, CFO.
Before we begin the formal remarks, please note the company’s attorneys advised 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 words or expressions 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 Agria Corporation strategic and operational plans contain forward-looking statements.
Agria may also make written or oral forward-looking statements in 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 in other written materials and in oral statements.
Statements that are not historical facts, including statements about Agria’s 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 statements.
Potential risks and uncertainties include, but are not limited to Agria’s limited operating history makes it difficult to evaluate our future prospects and results of operations; 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 and livestock and/or food scares in China, would 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. Other risks are outlined in Agria’s filings with the U.S. Securities and Exchange Commission, including our Form F-1/A filed on November 2, 2007.
All information provided on this call is as of the date of this call. Agria undertakes no obligation to update any forward-looking statement, except as required under applicable law. In addition, several non-GAAP financial measures that we mentioned on this call, information relating to the corresponding GAAP measures and 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 now like to turn the call over to our CEO, Mr. Kenneth Huang. Please go ahead sir.
Thank you David, and thank you everybody for joining today’s call. I’m pleased to report that revenue for the second quarter came in above guidance. Several issues that impacted Q1 were not there in Q2, (inaudible). Our sheep breeding business were quite on track in June. As a result frozen semen products we’ve ended for 50% of the total segment, revenue up from zero in Q1. We expect to continue momentum in this area through the second half of the year.
As part of our growth plan, we are focusing our breeder sheep block in Q3. We currently have about 3000 breeders. We plan to purchase 3000 new breeder sheep and we will then sell out about 2000 of the old breeders. Breeders typically remain in service for about five years.
Revenue in our corn seed segment increased in Q2 to RMB 53 million compared to RMB 41 million in Q2 ’07. A normal seasonality trends in our business; revenue was lower in the segment compared to Q1 revenue of RMB 502 million. Going forward we continue to move our forecast to proprietary seeds due to the longer-term trends given in the business.
Our proprietary seeds or fall for [ph] more margin, stability longer-term give us the opportunity to build our brand. In generic seeds, the market will continue to suffer from the ASP pressure making it a live and attractive market. Over the longer-term we see the proprietary seeds and we’re planning to acquire and of course develop new varieties for improved yield and cost, but we will also see expansion into other areas in China such as Northeast and the Middle East and the Southwestern regions of China, another opportunity in the seeds segment exists in other area like flax [ph] seeds. We plan for our R&D to consist of cost (inaudible) within our own facilities and through the collaboration disbursements owned institutions and the universities.