Origin Agritech Limited · NASDAQ:SEED
Origin Agritech — Roth Capital Partners (February 2007)
23 slides from Origin Agritech's conference presentation, Feb 20, 2007
Slide 1: Origin Agritech Limited (Nasdaq GM: SEED) February 2007 Roth Capital Partners
ORIGIN AGRITECH LIMITED (Nasdaq GM: SEED) February 2007 Roth Capital Partners
Slide 2: Forward-looking statement
Forward-looking statement This presentation contains forward-looking statements. These statements include, without limitation, statements regarding our expectations, assumptions, beliefs, intentions or strategies regarding the future. All forward-looking statements included in this presentation are
Slide 3: Company Snapshot
COMPANY SNAPSHOT Business: One of the largest, vertically integrated suppliers of hybrid corn, cotton, rice, and canola seed in China History: One of the first private seed company in China Founded in 1997 with total equity investment of $400,000 Location: Headquarter in Beijing, nationwide sales or
Slide 4: Investment Considerations
INVESTMENT CONSIDERATIONS ⑀⍽ Revenue and earnings performance while in expansive growth phase ⑀⍽ Strong liquidity profile ⑀⍽ Broad geographic sales footprint ⑀⍽ Proven success in a fragmented, high-tech industry with significant barriers to entry ⑀⍽ Differentiating vertically-integrated business mod
Slide 5: The Origin Companies
THE ORIGIN COMPANIES (as of 9/30/06, audited) ⑀⍽ Origin Base business (excluding Denong) ⑀⏇ $46.8 million in revenue ⑀⏇ 36.5% gross profit ⑀⏇ 43.4 million kg of seed delivered, up from 37.1 million kg ⑀⍽ Denong Zhengcheng Seed Company Ltd. (SW China) ⑀⏇ Acquired 52% in January 2006 ⑀⏇ $19.4 million
Slide 6: Revenue
REVENUE $0 $10 $20 $30 $40 $50 $60 $70 $80 $90 $100 2002 2003 2004 2005 9 Mo. '06 FY Sept '07 (US dollars in millions, audited) $80 - $90 mm (3) $66.2 mm (2) $11.9 mm $23.2 mm $36.4 mm $25.7 mm (1) (1) Partially attributable to $22.5 million of deferred revenue (2) Change fiscal year to September 30
Slide 7: Net Income
NET INCOME $0 $1 $2 $3 $4 $5 $6 $7 $8 $9 $10 2002 2003 2004 2005 9 Mo. '06 (US dollars in millions, a udited) 7 $3.5 mm $3.2 mm $7.9 mm $2.0 mm (1) (1) Partially attributable to $22.5 mm of deferred revenue (2) Change fiscal year to September 30ô2006 $9.7 mm (2)
Slide 8: Hybrid Seeds
HYBRID SEEDS 8 ⑀⍼ Crossbreed parents to produce higher yielding hybrid for testing ⑀⏇ Origin makes 40,000+ new crosses for field testing, every year ⑀⍼ Hybrids considered “mules” ⑀⏇ New seeds required each season Hybrid life cycle is typically 6-8 years ⑀⏇ Replace old hybrids with new hybrids ⑀⏇ New
Slide 9: Burgeoning Proprietary Product Pipeline
BURGEONING PROPRIETARY PRODUCT PIPELINE 9 0 2 4 6 8 10 12 14 2003 2004 2005 9/30/2006 0% 1% 6% 11.5% (Sales of proprietary seed as a % of Origin’s total sales) Introduced First Internally Developed Hybrid Corn Seed 10 Proprietary Corn Hybrids 6 Proprietary Rice Hybrids 2 Proprietary Canola Hybrids
Slide 10: Hybrid Seed Production
HYBRID SEED PRODUCTION ⑀⍽ 100,000 production farmers ⑀⍽ Localized mainly in two provinces ⑀⍽ Higher compensation to grow Origin seed ⑀⍽ Consistent production ⑀⏇ Irrigated fields ⑀⏇ Technical training and strict quality control ⑀⏇ 212 full time technicians ⑀⏇ 500 temporary agronomists ⑀⏇ Produced 97
Slide 11: In-House Sales & Marketing
IN-HOUSE SALES & MARKETING ⑀⍽ Origin’s national distribution license allows for sale of approved seeds in any province in China ⑀⍽ 191 people in 15 regional offices ⑀⍽ 3,200 first level distributors ⑀⏇ 60,000 second-level distributors and some retailers ⑀⏇ No distributor accounts for more than 1% of
Slide 12: Geographic Presence
GEOGRAPHIC PRESENCE © oisteauton center I Conattioning Piant {sree stn A soint Venture 7 : 7 q
Slide 13: $3.4 Billion Hybrid Seed Market
$3.4 BILLION HYBRID SEED MARKET $1.6 billion $1.6 billion $150 million Source: Internal Origin Study, based on Company’s premium pricing Corn estimated 90-95% industry hybrid penetration Rice estimated 60-65% industry hybrid penetration Cotton estimated 30-35% industry hybrid penetration
Slide 14: GMO Landscape in China
GMO LANDSCAPE IN CHINA ⑀⍽ Approved biotech cotton in the 1990s ⑀⍽ Planted 5.3 million hectares of Bt cotton in 2006 ⑀⍽ Currently 66% of Bt penetration for cotton ⑀⍽ Estimated 6.8 million small farmers grow Bt cotton ⑀⍽ Second country after India to profit from Bt cotton ⑀⍽ About 80% of Bt cotton in
Slide 15: Highly Regulated Industry
HIGHLY REGULATED INDUSTRY ⑀⍽ Minimum of 6 years to bring a new hybrid to market after R&D ⑀⍽ Must obtain licenses for production and distribution ⑀⍽ Stringent regulatory review before giving approval to sell a new hybrid ⑀⏇ Two cycles of monitored growth at five locations ⑀⏇ Must have 8% increased i
Slide 16: Business Model
BUSINESS MODEL ⑀⍽ Develop a strong seed portfolio ⑀⍽ Devise an efficient and effective process for obtaining regulatory approvals ⑀⍽ Create a robust, high quality, and expandable production system ⑀⍽ Position the hybrid seeds as premium priced, high tech products ⑀⍽ Create an effective distribution
Slide 17: Track Record of Success
TRACK RECORD OF SUCCESS ⑀⍽ Increasing number of higher-margin proprietary seeds ⑀⍽ Good balance between early-late stage new hybrids ⑀⍽ Corn base, augmented by rice, cotton, canola ⑀⍽ 2006 ⑀⏇ 97 hybrid seed products sold, up from 39 in 2005 ⑀⏇ 6 new Government approvals received ⑀⏇ 116 new proprieta
Slide 18: Growth Focus
GROWTH FOCUS ⑀⍽ Dynamic nature of seed industry could impact future valuations ⑀⍽ Inefficiently managed competitors are viewed as undervalued assets ⑀⍽ Significant opportunities for well-managed, wellcapitalized companies such as Origin ⑀⍽ Considering an accelerated acquisition strategy to increase
Slide 19: Consolidated Statements of Operations
CONSOLIDATED STATEMENTS OF OPERATIONS (US dollars in thousands, audited ) 9/30/06 9/30/05 (1) Revenues $ 66,169 $ 25,751 Cost of Revenues $ (45,395) $ (15,623) Gross Profit $ 20,774 $ 10,128 Operating Expenses $ (13,652) $ (5,520) Operating Income $ 7,122 $ 4,608 Equity Earnings $ 1,623 $ 38 Income
Slide 20: Consolidated Balance Sheets
CONSOLIDATED BALANCE SHEETS (US dollars in thousands, audited) 9/30/06 12/31/05 Cash, Equivalents, & Securities $ 36,408 $ 29,471 Total Assets $ 124,508 $ 98,981 Deferred Revenue $ 3,049 $ 22,501 Total Current Liabilities $ 64,474 $ 61,911 Total Liabilities $ 64,839 $ 62,500 Minority Interests $ 1,6
Slide 21: Seasoned Management
SEASONED MANAGEMENT 21 • Gengchen Han, Ph.D Chairman and CEO - Iowa State University Ph.D. in Plant Breeding and Cytogenetics - 20 years of industry experience - Formerly with International Maize and Wheat Improvement Center and Pioneer Hi-bred International • Yang Yasheng President and COO - Univer
Slide 22: Investment Conclusions
INVESTMENT CONCLUSIONS ⑀⍽ Profitable and cash flow positive ⑀⍽ Growing leader in fragmented high technology market ⑀⍽ Track record of success in highly regulated industry with formidable barriers to entry ⑀⍽ Well-capitalized and organized to pursue growth opportunities ⑀⍽ Experienced management team
Slide 23: Origin Agritech Limited (Nasdaq GM: SEED) February 2007 Roth Capital Partners
ORIGIN AGRITECH LIMITED (Nasdaq GM: SEED) February 2007 Roth Capital Partners
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