China Agritech (PINK:CAGC)

BEIJING, Feb. 22, 2011 /PRNewswire-Asia/ -- China Agritech, Inc. announced that it has expanded its sales partnership with China National Agrochemical Corporation for the Company's Green Vitality organic granular compound fertilizer products.

Pursuant to the agreement, China Agritech will supply Green Vitality organic granular compound fertilizers worth an estimated value of RMB 44 million (approximately US$6.8 million) through December 2011.

By the end of 2010, the Company had become an official supplier of organic liquid compound fertilizers to the China National Agrochemical Corporation ("CNAC"), China's largest developer, manufacturer and seller of pesticides and one of the major players in the domestic fertilizer market. China Agritech's sales contract with CNAC in 2010 was valued at approximately US$2.0 million, focused upon the Company's Green Vitality organic liquid compound fertilizers.

Third Quarter 2010 Results

• Net revenue for the third quarter of 2010 was $23.9 million compared with $27.0 millionin the same quarter last year.

 The decline in the sales of organic granular fertilizers was mainly due to normalizing the credit sale policy. As the organic granular fertilizers move beyond its introductory stage, an increasingly larger proportion of the granular products sales are now cash based and it is expected to remain so going forward. Decreased sales of organic granular fertilizer were also due to seasonality as such products are usually applied by farmers prior to the seeding season. Unusually high temperature and precipitation hampered the production, storage, transportation of organic fertilizers, decreasing order sizes from some commercial users. In addition, severe weather in the central and southern parts of the country, such as Hubei ,Anhui  and Guangxi provinces, also negatively impacted overall fertilizer sales, and in particular that of the organic granular fertilizers.  

• GAAP net income for the third quarter of 2010 was $1.8 million compared with $5.7 million in the same period of 2009. Diluted earnings per share of $0.09 on a substantially greater number of shares outstanding, compared with diluted earnings per share of $0.41 in the previous year's same quarter.

• Excluding the provision for doubtful debt and share-based compensation, adjusted net income attributable to common stockholders for the third quarter of 2010 was $4.6 million, compared with $6.2 millionin the third quarter of 2009.

• Non-GAAP diluted earnings per share were$0.22 versus $0.44 for the same period in 2009, but on a substantially greater number of shares outstanding in the 2010 period.

• Third quarter analyst eps estimates were $0.33. 

Business Outlook

Mr. Yu Chang, Chairman and Chief Executive Officer of China Agritech, concluded, "Entering the fourth quarter, weather conditions have become stable throughout China. Our granular sales are now accelerating. Seasonally, fourth quarter is the strongest quarter for granular products with solid payment receipt, as we have changed the payment terms for granular products from 90 days in the beginning of the year to current term of cash on delivery. The price of agricultural products, especially the cost-efficient and reliable organic fertilizers, has been rebounding as seeding resumes. We are capitalizing on this favorable trend to try our best to achieve our annual target."

• Net revenue grew 63% year-over-year to a quarterly record of $34.3 million from $21.0 millionin the second quarter last year. Liquid fertilizer sales increased year-over-year by 46% to approximately $20.0 million, while granular fertilizer sales posted a year-over-year 95% increase to reach approximately$14.3 million. Organic granular fertilizer continued to gain traction among farmers during the quarter, while the sales of organic liquid fertilizer is expected to further accelerate during the growing season starting from May. The increase of organic liquid fertilizer sales also reflected the expansion of the Company's customer base to newly established markets in the central and southern regions of China.
  
• Excluding the non-cash gain in the fair value of warrants, gain on extinguishment of warrants, and share-based compensation, non-GAAP net income attributable to common stockholders for the second quarter of 2010 was $7.3 million, up 30.4% from $5.6 million in the same period last year. Non-GAAP diluted earnings per share were $0.37 versus $0.44 for the same quarter in 2009, but on substantially greater number of shares outstanding in the 2010 period. Diluted weighted average number of shares outstanding for the second quarter of 2010 was 19.7 million compared with 12.7 million shares in the second quarter of 2009.

Business Outlook

The Company reiterates its guidance for the year ending December 31, 2010 with

• Revenues expected to reach approximately $114 million.
  
• Non-GAAP net income, which excludes the change in the fair value of warrants issued, gain on extinguishment of warrant liability, and stock-based compensation, of approximately $23.5 million, representing a year-over-year growth of 50% and 45% on revenues and non-GAAP net income, respectively.
  
  "While we are encouraged by our solid performance in the first half of the year, we expect that the second half will be stronger as the peak farming season is unfolding and our products are gaining traction. Our balance sheet is now strengthened and we expect that our cash flow will continue to improve. With our product portfolio, growing R&D capability, nationwide distribution footprint and strong financial standing, we believe that we are well positioned to capture the wave of the organic food market growth in China," Mr. Yu Chang, Chairman and Chief Executive Officer of China Agritech, concluded.

• Our Growth Strategy
   
  We believe that our increased capacity to produce organic granular compound fertilizer products, which have a lower price point and greater market appeal than our premier organic liquid compound fertilizer products, makes us well positioned to expand sales and increase revenues. We have focused on the expansion of our granular production because the market for organic granular fertilizer is almost ten times larger than the current market for organic liquid fertilizer due to the familiarity and tradition of farmers’ using granular fertilizers. In addition, the per unit amount of granular fertilizer used for sowing coverage is much higher than the amount used for liquid fertilizer. 
  
• Our goal is to further expand our products’ market share throughout the PRC by building and operating branded, large-scale distribution centers, and engage franchisees to own and operate retail chain stores which will sell our own branded products (e.g., organic fertilizers) and international and local sourced products (e.g., seeds, pesticides and other agricultural products). Our growth strategy includes the following strategies:
  
  • Continue Organic Growth Initiatives. We believe that the current fertilizer market is fragmented and represents an excellent opportunity for us to gain additional market share from our competitors, mainly chemical fertilizer manufacturers. We intend to establish branded chain stores by converting our current offices into a flagship store and distribution center and inviting our current distributors to join in our line as franchisees to operate chain stores under our brand. We also intend to leverage our strong brand, quality customer services and quality of our products to gain incremental business in the fertilizer market. Finally, we strongly believe that as we continue to grow, economies of scale and enforced brand awareness will allow us to continue to be profitable.
    
  • Expand the lines of our products. Beside our current organic fertilizers, we will seek to source, either internally or locally, other agricultural products, like seeds, pesticides, agricultural equipments and tools to expand the lines of our products to meet all the necessities of farmers in the PRC. All these products will be sold through our branded chain stores directly to farmers, who are the end customers.
    
  • Capitalize upon Strong Industry Dynamics in the PRC. Continued economic growth in the PRC, coupled with evolving government policy on preservation of farmlands by promoting use of organic fertilizers on one hand and improvement of farmers’ income on another hand, present us with significant future growth opportunities. We believe that with continued strong government commitment, we will continue to benefit from it.
    
  • Execute Strategic Acquisitions. We intend to acquire certain domestic targets that are accretive and synergistic to our growth strategy.

Mr. Yu Chang, Chief Executive Officer of China Agritech, commented, "We are encouraged by the initial results from our strategic actions to expand into the much larger market for organic granular fertilizers and extend our geographic reach into new Chinese provinces. As many Chinese farmers are more familiar with granular than liquid fertilizers, we believe that the bundle of our granular with our liquid fertilizers will continue to drive sales volume. We also anticipate our major distribution relationships in the domestic and foreign markets will add to our growth. The additional capital from Carlyle's investment strengthened our cash position and we are financially well equipped for further expansion. Carlyle will help us integrate our marketing by building marketing and distribution channels so we may more quickly penetrate targeted markets.

^a The above forecasts reflect the Company's current and preliminary views and are therefore subject to change. Please refer to the Company's Safe Harbor Statement (usually in press releases) for the factors that could cause actual results to differ materially from those contained in any forward-looking statement.

^b Adjusted for a 1 for 4 reverse stock split

Source: PR Newswire (November 12, 2009)

Mr. Yu Chang, Chief Executive Officer of China Agritech, commented, 'We are reaping the benefits of our strategic actions to expand into the much larger market for organic granular fertilizers and extend our geographic reach into new Chinese provinces. We are excited with the growth this quarter, especially with the contribution from two of our three planned new production facilities for organic granular fertilizers. We expect the third facility will be completed by the end of 2009. We also anticipate additional sales from our major distribution relationships in the domestic and foreign markets in the second half of 2009.'

The Company has full confidence that the projected net revenue of approximately $60 million and net income attributable to the common stockholders of $9.5 million for the fiscal 2009 year will definitely be exceeded. The company is projecting the production of 20,000 tons of granular organic fertilizers in the third quarter of 2009. See Previous Guidance.

Source: PR Newswire (August 17, 2009)

The Chinese government has reported that raw materials prices are gradually declining, which resulted in steadily improving market conditions for compound fertilizers in China. The Company anticipates that lower material costs will generate higher profits on its anticipated revenues.

Mr. Yu Chang, Chairman and Chief Executive Officer of China Agritech, commented, 'We have taken a number of steps to position China Agritech for further growth. We expanded our marketing and distribution network within China, validated our relationship with China's largest fertilizer distribution company, Sinochem, created a diversified manufacturing base for our new organic granular fertilizer to penetrate key agricultural areas in China, and are introducing new high-margin fertilizers based on our proprietary technologies. Further, we intend to be more aggressive in enhancing growth and profits through exports and acquisitions. We look forward to the second half of 2009 as we further execute our plans to build shareholder value.'

Source: See Release

^a Company forecasts reflects the Company's current and preliminary view, which is subject to change.

^b The company did not provide EPS guidance. The GeoTeam® used the first quarter fully diluted shares outstanding of 24,699,615 to derive an implied EPS number.

Guidance Report: 

Full Year Fiscal 2008 Guidance Ending December

* The company did not provide EPS Guidance.  EPS of $0.35 was derived by using the company's shares outstanding as of the third quarter (24,699,615).

"The preliminary revenue is now lower than the previous guidance of $54 million and the preliminary net income remains unchanged from guidance. The reason for the lower revenue was mainly due to price decline and high sourcing costs for granular fertilizers in the fourth quarter."