Beijing, China
January 8, 2015

Origin Agritech Limited SEED, +5.93% ("Origin" or the "Company"), a technology-focused supplier of crop seeds in China, today announced unaudited financial results for the fiscal year ended September 30, 2014. These unaudited year end results reflect the Company's consolidated financial statements during the period from October 1, 2013 to September 30, 2014. Origin prepares its consolidated financial statements in accordance with generally accepted accounting principles (GAAP) of the United States.

Operating Activities and Results

Fiscal 2014 was a transition year for both the agricultural biotechnology and conventional seed industries in China. For the genetically modified technologies, there are indications that the Chinese government is starting to promote GM technologies and is trying to educate the public about the safety of these technologies. In reaction, however, the public debate about GM technologies in China heated up significantly in the media, mostly on the Chinese Internet, as some celebrities joined the debate. For the conventional seed industry, fiscal year 2014 represented a very challenging year as the industry wide inventory levels reached historic highs at the beginning of the selling season. However, a resulting inventory destocking, which we believe is occurring, is expected to improve the supply/demand ratio for the 2015 planting season.

More importantly, Origin has made significant progress on the biotechnology front and has made operational improvements as we faced the challenges in the seed industry during fiscal year 2014. Our GM corn product pipelines now include not only the phytase transgenic corn seed, but we now have glyphosate tolerance corn seed, next generation corn seed products of stacked glyphosate tolerance and insect resistance traits and other GM products in different stages of government safety approval. For our conventional seed business, we have weathered through the challenging market, and we were able to increase our core corn seed sales volume by 10% year over year in fiscal year 2014 (excluding scrap sales and our contract production business). Looking forward, we believe that we have prepared Origin for the expected market recovery in 2015 with improved operating efficiency and promising new seed product pipelines.

Biotechnology Progress. In fiscal year 2014, Origin further advanced its GM corn seed pipeline with several generations of GM technologies. In addition to our progress with the regulatory approvals, we have made significant progress in the backcrossing of our GM traits into our hybrid corn varieties. Since we started licensing programs of our GM technologies to large multinational companies several years ago, we have achieved desirable results in the backcrossing programs to incorporate our GM traits into the corn varieties of the multinational companies. Backcrossing is a necessary step to commercialize GM corn seed products and it often takes several years to achieve the optimal results. We believe that our backcrossing programs are progressing well, and we are now much closer to the commercialization of GM technologies of our first generation GM product phytase corn and our second generation product glyphosate tolerance transgenic corn seed. Our new technologies, including insect resistance (Bacillus Thuringiensis, or Bt) and stacked traits of glyphosate tolerance and insect resistance, are in various stages of regulatory approval. The attached chart is a simplified summary of the current stages of our key GM pipelines.

Furthermore, we have made significant achievement in our biotechnologies intellectual property protections. We were awarded three domestic patents in fiscal year 2014: 1) Method for Developing Glyphosate-Resistant Maize (ZL201210107400.1); 2) A Glyphosate-Resistant Protein G2-aorA Monoclonal Antibody and the Use Thereof (ZL201210107179.1), and 3) Method for Detecting Glyphosate-Resistant Protein G2-aorA and Dedicated ELISA Kit (ZL201210107406.0). We now have a total of 6 domestic patents and one PCT patent, as listed in the table below. During the fiscal year 2014, we applied for three additional patents in China: 1) Method and the Primer Pairs for Detecting Glyphosate-Resistant Maize G1105E-823C Expressing G2-aroA Gene (201410267596.1); 2) The Primer Pairs to Detect Glyphosate-Resistant Maize G1105E-823C Expressing G2-aroA Gene (201410268436.9); and 3) The Primer Pairs Used for Detecting Glyphosate-Resistant Maize G1105E-823C Expressing G2-aroA Gene (201410268258.X). We believe these patents will strengthen further our leading position in the GM seed technologies in China.

Operating Improvement Progress. On the operating improvement front we were able to overcome the challenges in one of the worst years in the seed industry by significantly reducing the operating costs, increasing sales volume of our corn seed business, and managing our inventory reduction efforts. We are pleased with the extra effort of the employees during this tough period in the seed industry. Their contributions during our organizational optimization process were and will continue to be essential to the success of solidifying our foundations and operating improvements.

Following the corporate restructuring in fiscal year 2012 and operational improvements in fiscal year 2013, we achieved further significant improvement in operating efficiency and cost reduction in fiscal year 2014. We were able to further reduce the number of employees and operating costs, especially the general & administrative expenses in fiscal year 2014. As of September 30, 2014, Origin has 531 employees, compared with 856, 713, and 678 employees as of September 30, 2011, 2012, and 2013, respectively. The G&A costs in fiscal year 2014 was RMB46.43 million, compared to RMB86.75 million, 77.59 million, and 66.15 million in FY2011, FY2012, and FY2013, respectively. The G&A expenses as the percentage of sales declined from 15.3% in FY2011 to 11.2% in FY2014. We believe our cost reduction efforts were important to the improvements in our financial performance during the challenging year.

On the marketing and inventory fronts, we have faced many more challenges than we originally anticipated when entering the fiscal year 2014 selling season and, by the end of fiscal second quarter of 2014, our inventory had reached a historical high as the competition escalated with many seed suppliers dumping seeds on the market. The imposition of more strict seed business license requirements also amplified inventory dumping as some small companies exited the market. In response to the market competition, we took swift action in our selling and marketing efforts and improved our sales dramatically during the last three months of the season. By the end of the fiscal year 2014 selling season, our sales organization recorded a 10% year over year volume increase for the corn seeds sales (excluding scrap sales and our contract production business). We think this is remarkable considering the tough market conditions and on-going reorganization efforts and it helped to improve our inventory position. 

Overall Analysis

Total revenues for the fiscal year ended September 30, 2014 were RMB414.89 million (US$67.52 million), a decrease of 14% from RMB481.69 million during the fiscal year ended September 30, 2013. Overall, the year-over-year decrease in revenues was mainly due to the lower sales for the Company's rice seed business and a decline in the corn seed contract production businesses.

Corn seeds remained our strongest product line, accounting for 86% of our overall sales. Total revenues from corn seeds were RMB357.44 million (US$58.11 million) in fiscal year 2014, compared with RMB387.22 million in fiscal year 2013. Excluding scrap sales and our contract production business, revenues from our key strategic corn seed business in fiscal year 2014 was RMB351.65 million (US$57.14 million), which was almost flat when compared with that revenue of RMB353.84 million in fiscal year 2013. The sales volume of the corn seeds, excluding the scrap and our contract production business, was up 10% year over year. Revenues from the rice product line for the year ended September 30, 2014 decreased by approximately 49% to RMB36.84 million (US$6.0 million) from RMB72.71 million in fiscal year 2013, due mainly to the increasing competition. Sales of canola seeds decreased by 5% to RMB20.62 million (US$3.35 million) in fiscal year 2014 compared to RMB21.77 million in fiscal year 2013.

Operating expenses for the fiscal year ended September 30, 2014 were RMB138.22 million (US$ 22.50 million), representing a decrease of 7% from RMB148.45 million in the fiscal year 2013, which was mainly because of our expense control efforts, notwithstanding an increase in marketing expenses. General and Administrative expenses for the fiscal year ended September 30, 2014 were RMB 46.43 million, a significant decrease of 30% year-over-year.

Operating loss for the fiscal year ended September 30, 2014 was RMB24.48 million (US$4.0 million), compared to the operating profit of RMB18.16 million for the fiscal year ended September 30, 2013. The decrease in operating results was mainly due to the decline in revenue and a relative increase in production cost.

Net loss for the fiscal year ended September 30, 2014 was RMB9.53 million (US$1.55 million) compared to the net income of RMB7.49 million for the fiscal year ended September 30, 2013. The year-over-year decline was mainly due to the decline in revenue and increase in production costs.

Net loss per share was RMB (0.42) or US$ (0.07) for the fiscal year 2014, compared with net income of RMB 0.32 in fiscal year 2013.

As of September 30, 2013 and 2014, we had approximately RMB131.98 million and RMB46.27 million (US$7.52 million), respectively, in cash and cash equivalents. Total borrowings as of September 30, 2013 and 2014 were RMB 286.32 million and RMB 289.83 million (US$47.11 million), respectively. During fiscal year 2014, Net cash used in operating activities was RMB85.64 million (US$13.92 million), down from a cash outflow of RMB146.11 million for the fiscal year ended September 30, 2013. Net cash used in investing activities was RMB0.56 million (US$0.09 million) for the fiscal year ended September 30, 2014, compared with RMB68.28 million for the fiscal year ended September 30, 2013. Net cash provided by financing activities was RMB0.39 million (US$0.06 million) for the fiscal year ended September 30,2014 compared with RMB191.69 million for the fiscal year ended September 30, 2013. The borrowing was mainly related to the operations of Beijing Origin and Linze Origin, which had RMB225.00 million (US$36.57 million) bank loan for settlement of seed purchases, and RMB52.52 (US$8.54 million) for the new corn seed processing plant construction in Xinjiang.

Research and Development Activities

Origin was built on its strong R&D platform and we strongly believe a commitment to R&D is essential to the growth of the company. During fiscal year 2014, we continue to make significant progress both in our conventional hybrid crop seed development programs and biotechnology R&D activities.

Key developments for Origin's GM corn seeds:

Phytase: Four commercial hybrids with phytase traits have completed the variety production test. These varieties with phytase traits have been submitted to the Chinese government (the Ministry of Agriculture) for variety safety certificate and final approval.

Glyphosate Tolerance: One GM glyphosate tolerance event (the unique DNA recombination event that took place in one plant cell) passed Phase 4 - Production Test and is waiting for the Phase 5 - Safety Certificate. Two more glyphosate tolerance events are being submitted for Phase 3 - Environment Release Test. In addition, more than one thousand events are undergoing Phase 1 - Laboratory Research;

Glyphosate + Bacillus Thuringiensis (Bt): Three events of the Company's glyphosate tolerance and insect resistance traits have advanced into Phase 3 - Environment Release Test. More than 4,500 events of the stacked traits (inserting more than one gene in a seed via biotechnology) are being screened in Phase 1 - Laboratory Research.

Backcrossing Programs: Multiyear programs of backcrossing of phytase and glyphosate tolerance traits into corn varieties from our own product lines as well as several product lines of multinational companies are progressing well. Successful backcrossing products of phytase and glyphosate tolerance traits into our own varieties are and will be submitted for government approvals.

Hybrid Corn Seed Development Program:

In addition to GM crop seeds, Origin has a large R&D program developing conventional hybrid crop seeds. In China, new hybrid seed varieties need to go through an official approval process prior to sales. This approval process typically involves three to four years of registration trials and normally proceeds according to the following sequential steps:

Pre-Registration > Registration Trial 1 > Registration Trial 2 > Field Demo > Approval

Each step leading up to approval takes approximately one year unless it needs to be repeated. In some localities the Registration Trial 2 and Field Demo steps are treated as one and the same step.

During fiscal year 2014, we had more than 35 tests going through different stages of the approval process. As the results of multiyear testing, we received registration approval for 8 of our new varieties. For both fiscal years 2013 and 2014, we received a total of 15 approvals for our corn seed hybrid products. This is a significant improvement over the previous three years, during which we only received a total of 5 approvals.

Outlook

Looking forward, we expect the market condition to recover in fiscal year 2015 as the industry corn seed inventory is expected to decline. With our new product introductions, increasing sales efforts, and operational improvements, we expect both revenues and operating income to improve meaningfully in fiscal year 2015. More importantly, we believe that our cash flow from operating activities will have a significant recovery as we manage our inventory and sales efforts product by product. 

Website: http://www.originagritech.com

Published: January 9, 2015