Le Gaga Second Quarter FY 2013 Earnings Release

HONG KONG, Feb. 22, 2013 (GLOBE NEWSWIRE) -- Le Gaga Holdings Limited (Nasdaq:GAGA) ("Le Gaga" or "the Company"), a leading greenhouse vegetable producer in China, today announced its financial results for the second fiscal quarter ended December 31, 2012.¹

Highlights of the Quarter Ended December 31, 2012

• Revenue decreased by 31.9%, to RMB102.7 million (US$16.5 million) for Q2 FY2013, compared to RMB150.8 million a year ago.
   
• Profit for the period decreased by 1.6%, to RMB65.7 million (US$10.5 million) for Q2 FY2013, compared to RMB66.8 million a year ago.
   
• Adjusted profit for the period² (non-IFRS measure) decreased by 49.1% to RMB32.8 million (US$5.3 million) for Q2 FY2013, compared to RMB64.5 million a year ago. A reconciliation of the adjusted profit for the period to profit for the period determined in accordance with IFRS is set forth in Appendix V.
   
• Adjusted EBITDA³ (non-IFRS measure) decreased by 36.0% to RMB54.5 million (US$8.7 million) for Q2 FY2013, compared to RMB85.1 million a year ago. A reconciliation of the adjusted EBITDA to profit for the period determined in accordance with IFRS is set forth in Appendix VI.
   
• Basic and diluted earnings per share was RMB2.89 cents (0.46 US cents) and RMB2.88 cents (0.46 US cents), respectively, for Q2 FY2013. Basic and diluted earnings per ADS⁴ was RMB144.5 cents (23.19 US cents) and RMB144.0 cents (23.11 US cents), respectively, for Q2 FY2013.
   
• Cash generated from operating activities decreased by 2.2%, to RMB50.7 million (US$8.1 million) for Q2 FY2013, compared to RMB51.9 million a year ago.
   
• Revenue-per-mu decreased to RMB4,382 (US$703) for Q2 FY2013, compared to RMB7,247 a year ago.
   
• Production output decreased to 22,419 metric tons for Q2 FY2013, compared to 36,536 metric tons a year ago.
   
• Our product mix planted in our fields shifted further towards solanaceous products. However, there was no significant change in our mix of products sold during the quarter as compared to last year, as we postponed part of the solanaceous products harvest from December 2012 to January 2013 in anticipation of further rising market prices. As a result, solanaceous vegetables sold to third parties in the PRC mainland represented 70% of total revenue for Q2 FY2013, compared to 69% of total revenue a year ago.
   
• Average selling price (ASP) of vegetables sold to third parties in the PRC mainland increased by 10.9% to 4.46 RMB/kg for Q2 FY2013, compared to 4.02 RMB/kg a year ago.
   
• Total arable land as of December 31, 2012 was 28,443 mu (1,896 hectare), representing an increase of 2,400 mu compared to September 30, 2012, and an increase of 2,825 mu compared to December 31, 2011.
   
• Total greenhouse area as of December 31, 2012 was 10,610 mu (707 hectare), representing an increase of 622 mu compared to September 30, 2012 and an increase of 2,151 mu compared to December 31, 2011.

Mr. Shing Yung Ma, the CEO of Le Gaga, commented, "In October we completed the planting of solanaceous products in our farm bases. Harvesting of solanaceous products commenced from the end of November. Market prices rose steadily in November and December. Volumes and quality of products in our greenhouses were in line with our expectations. However, we postponed part of our harvest originally scheduled for December until January in anticipation of a further increase in market prices leading up to the Chinese New Year holiday, which fell in the second week of February. In contrast, during the previous winter season we accelerated our harvest activities towards the end of the December quarter as prices rose rapidly in the month of December in anticipation of the Chinese New Year holiday, which fell in the third week of January last year. A stronger focus on off-season solanaceous production also means that we have reduced the area of short-cycle leafy and cruciferous vegetables, planted and harvested during the period. This reduces leafy and cruciferous revenue in the second quarter but increases expected revenue from solanaceous vegetables during the entire winter season.

We are spending much effort to further develop our greenhouse production system. This includes upgrading existing greenhouses, constructing additional nursery greenhouses and trials with soil-less production techniques for peppers and tomatoes. Favorable weather allowed us to make good progress on our greenhouse construction projects, as we added over 600 mu of greenhouses during the quarter. We have also added a substantial area of new arable land during the quarter in line with our land expansion plans."

Mr. Auke Cnossen, the CFO of Le Gaga, added, "Annual revenue per mu and profit continue to be our key performance indicators. This means continued specialization in off-season production of greenhouse vegetables such as peppers and tomatoes. 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. Four of our major expenses, including labor, fertilizer, packing and transportation, are all directly 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 was recorded for the period. The large net impact was due to an increase in area planted with high value solanaceous crops in our greenhouses at the end of December as compared to the end of September.  Despite lower revenue, our operating cash flow was strong as a result of a lower receivables balance on December 31 as compared to September 30.  Although market prices were lower in December 2012, as compared to December 2011, our average selling prices improved due to a more favorable product mix and better quality. The use of better packing materials further increased average selling prices."

Financial Results for the Three Months Ended December 31, 2012

Revenue decreased by 31.9%, to RMB102.7 million (US$16.5 million) for Q2 FY2013, compared to RMB150.8 million a year ago. The decrease in revenue was due to more pronounced seasonality of our annual revenue. Although market prices of solanaceous vegetables increased steadily during the months of November and December, we postponed part of our harvesting activity from December to January in anticipation of further increasing market prices. Furthermore, we planted more solanaceous vegetables (to be harvested during the entire winter season) and thus planted and harvested fewer short cycle leafy and cruciferous vegetables during the period as compared to a year ago. The decrease in revenue was partially offset by a more favorable product mix and better product quality of those products harvested during the period, resulting in higher average selling prices. The more pronounced seasonality of our annual revenue resulted in a decrease in revenue-per-mu from RMB7,247 for the three months ended December 31, 2011 to RMB4,382 (US$703) for the three months ended December 31, 2012.

We primarily grow solanaceous vegetables (mostly peppers and tomatoes) during the second fiscal quarter. Solanaceous vegetables generally have a higher selling price compared to leafy vegetables. Due to increased greenhouse area, our overall product quality improved in Q2 FY2013 compared to a year ago. Better harvest timing in the current fiscal quarter further lead to higher selling prices. The production volume of leafy and other vegetables declined in Q2 FY2013 compared to a year ago as our product mix shifted towards solanaceous products.

Cost of inventories sold decreased by RMB43.2 million, or 32.4%, to RMB90.1 million (US$14.5 million) for Q2 FY2013, compared to RMB133.3 million a year ago.

Adjusted cost of inventories sold⁶ (non-IFRS measure) decreased by RMB11.7 million, or 25.5%, to RMB34.1 million (US$5.5 million) for Q2 FY2013, compared to RMB45.8 million a year ago. Adjusted cost of inventories sold as a percentage of revenue increased from 30.4% for the three months ended December 31, 2011 to 33.2% for the three months ended December 31, 2012, primarily due to increased direct materials costs as well as higher depreciation charges, as a percentage of revenue.

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 RMB35.3 million was recognized arising from biological assets fair value adjustment for Q2 FY2013, as compared to a net gain of RMB8.0 million recognized a year ago. 

The net gain of RMB35.3 million for Q2 FY2013 primarily arose from a further increase in area planted with solanaceous products as compared to September 30, 2012 (the immediately preceding reporting period end), resulting in a positive net impact.  

The larger positive net impact for Q2 FY2013 compared to that of a year ago was primarily due to (1) a larger area of solanaceous products planted during Q2 FY2013 compared to a year ago, and (2) higher expected selling prices for products on our land as of December 31, 2012 compared to December 31, 2011 due to a more favorable product mix within the solanaceous category and better quality.

Our packing expenses decreased by RMB0.7 million, or 8.5%, to RMB8.1 million (US$1.3 million) for Q2 FY2013, compared to RMB8.8 million a year ago, primarily due to a decrease of RMB0.6 million in packing materials consumed, as a result of lower sales volume. This was partially off-set by better packing material used, which translated into higher average selling prices.

Our land preparation costs increased by RMB1.0 million, or 13.2%, to RMB9.3 million (US$1.5 million) for Q2 FY2013, compared to RMB8.3 million a year ago, which was primarily due to an increase in greenhouse coverage which increased the unit land preparation cost, partially offset by a decrease in the amount of land in reserve or under construction as newly constructed farm bases went into production during the quarter.

Our selling and distribution expenses decreased by RMB2.7 million, or 29.0%, to RMB6.5 million (US$1.0 million) for Q2 FY2013, compared to RMB9.2 million a year ago, which was in line with the decrease in sales during the period.

Our administrative expenses decreased by RMB2.4 million, or 16.7%, to RMB12.0 million (US$1.9 million) for Q2 FY2013, compared to RMB14.4 million a year ago, primarily due to a decrease of RMB3.2 million in equity-settled share-based compensation.

As a result of the foregoing factors, profit for Q2 FY2013 decreased by 1.6%, to RMB65.7 million (US$10.5 million) for Q2 FY2013, compared to RMB66.8 million a year ago.

Adjusted profit for the period decreased by 49.1% to RMB32.8 million (US$5.3 million) for Q2 FY2013, compared to RMB64.5 million a year ago. 

Basic and diluted earnings per share was RMB2.89 cents (0.46 US cents) and RMB2.88 cents (0.46 US cents), respectively, for Q2 FY2013. Basic and diluted earnings per ADS was RMB144.5 cents (23.19 US cents) and RMB144.0 cents (23.11 US cents), respectively, for Q2 FY2013.

Our operating cash inflow decreased by RMB1.2 million, or 2.2%, to RMB50.7 million (US$8.1 million) for Q2 FY2013, compared to RMB51.9 million a year ago. Although our revenue decreased, there was no material change in cash received due to faster collection of trade receivables during the quarter.  Furthermore, cash paid for our operating expenses decreased.

Cash used in investing activities decreased by RMB0.8 million to RMB99.8 million (US$16.0 million) for Q2 FY2013, compared to RMB100.6 million a year ago. The net cash outflow of RMB99.8 million for Q2 FY2013 was primarily due to (1) our payment for construction in progress and prepayments for construction works totalling RMB86.1 million, which mainly consisted of (a) payment of RMB50.1 million for agricultural infrastructure, (b) payment for land improvements of RMB19.0 million, and (c) payment for construction of greenhouses of RMB17.0 million, and (2) the increase in pledged bank deposits related to construction work of RMB10.0 million.

Business Outlook for the Fiscal Year Ending June 30, 2013

The Company continues to estimate 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.

Conference Call

The Company will host a conference call at 8:00 a.m. ET on February 22, 2013 (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:

• +1 866 549 1292 (U.S. Toll Free)
• +400 681 6949 (China Toll Free)
• +852 3005 2050 (International)
• Pass Code: 534242#

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:

• +852 3005 2020
• Passcode: 135415#

A live and archived webcast of the call, as well as a presentation with the Company's financial results will be available on the Company's website at www.legaga.com.hk/html/index.php.

About Le Gaga Holdings Limited (Nasdaq:GAGA)

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.

The Le Gaga Holdings Limited logo is available at: http://www.globenewswire.com/newsroom/prs/?pkgid=8233

Safe Harbor Statements

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. Forward-looking statements typically are identified by the use of terms such as "may," "could," "would," "will," "plan," "anticipate," "believe," "estimate," "predict," "outlook," "on track," "potential," "expect," "intend" and "future" or similar expressions, although some forward-looking statements are expressed differently. You should consider statements that contain these words carefully because they describe our expectations, plans, strategies and goals and our beliefs concerning future business conditions, our results of operations, financial position, and our business outlook or they state other ''forward-looking'' information based on currently available information. Assumptions and other important factors could cause our actual results to differ materially from those anticipated in our forward-looking statements include, but not limited to: our ability to continue to lease farmland or forestland; the legality or validity of our 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 our 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 off-season products, increasingly shifting our product mix to solanaceous products, 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; regulatory compliance, changes or action, including environmental and trade regulation, our ability to comply with U.S. public accounting reporting requirements, including maintenance of an effective system of internal controls over financial reporting; our susceptibility to adverse changes in political, economic and other policies of the Chinese government that could materially harm its business; the risk factors or uncertainties are listed from time to time in our filings with the Securities and Exchange Commission.  Other factors and assumptions not identified above are also relevant to the forward-looking statements, and if they prove incorrect, could also cause actual results to differ materially from those projected.  All forward-looking statements are expressly qualified in their entirety by the foregoing cautionary statements.  Our forward-looking statements speak only as of the date made.  We assume no obligation to update or to publicly announce the results of any revisions to any of the forward-looking statements to reflect actual results, future events or developments, changes in assumptions or changes in other factors affecting the forward-looking statements.

Information Related to Certain Non-IFRS measures

This press release contains the following financial measures that differ from the comparable measures under International Financial Reporting Standards (IFRS): adjusted cost of inventories sold, adjusted profit for the period and adjusted EBITDA. Reconciliations between those non-IFRS measures and the comparable IFRS measures are included elsewhere in this press release. While we believe these measures are useful for investors to assess our financial results, these non-IFRS measures should not be considered substitutes for the most directly comparable IFRS measures. Additional information concerning non-IFRS measures are included in our filings with the Securities and Exchange Commission that are available in the "Investors – SEC Filings" section of our website, www.legaga.com.hk.

Adjusted cost of inventories sold is defined as cost of inventories sold before biological assets fair value adjustment. We are primarily engaged in agricultural activities of cultivating, processing and distributing vegetables and have therefore adopted International Accounting Standard 41 "Agriculture", or IAS 41, in accounting for biological assets and agricultural produce. Unlike the historical cost accounting model, IAS 41 requires us to recognize in our income statements the gain or loss arising from the change in fair value less costs to sell of biological assets and agricultural produce for each reporting period. Cost of inventories sold determined under IAS 41 reflects the deemed cost of agricultural produce, which is based on their fair value (less costs to sell) at the point of harvest. Biological assets fair value adjustment is the difference between the deemed cost of the agricultural produce and the plantation expenditure we incurred to cultivate the produce to the point of harvest. Although an "adjusted" cost of inventories sold excluding these fair value adjustments is a non-IFRS measure, we believe that separate analysis of the cost of inventories sold excluding these fair value adjustments adds clarity to the constituent parts of our cost of inventories sold and provides additional useful information for investors to assess our cost structure. A reconciliation of adjusted cost of inventories sold to IFRS cost of inventories sold is set forth in Appendix IV.

Adjusted profit for the period represents profit for the period before the net impact of biological assets fair value adjustment and further adjusted to exclude, as applicable, the effects of non-cash share-based compensation, offering expenses and impairment losses on property, plant and equipment and prepayments charged to the income statement. We believe that separate analysis of the net impact of the biological assets fair value adjustments, non-cash share-based compensation, offering expenses and impairment losses on property, plant and equipment and prepayments adds clarity to the constituent part of our results of operations and provides additional useful information for investors to assess the operating performance of our business. A reconciliation of adjusted profit for the period is set forth in Appendix V.

Adjusted EBITDA is defined as EBITDA (earnings before net finance income (costs), income tax expense, depreciation and amortization), as further adjusted to exclude, as applicable, the effects of non-cash share-based compensation, the net impact of biological assets fair value adjustment, offering expenses and impairment losses on property, plant and equipment and prepayments charged to the income statement. We believe adjusted EBITDA is useful to investors because it is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry. You should use adjusted EBITDA as a supplemental analytical measure to, and in conjunction with, our IFRS financial data. In addition, we believe that adjusted EBITDA is useful in evaluating our operating performance compared to that of other companies in our industry because the calculation of adjusted EBITDA generally eliminates the effects of financing and income taxes and the accounting effects of capital spending, which items may vary for different companies for reasons unrelated to overall operating performance. We use these non-IFRS financial measures for planning and forecasting and measuring results against the forecast. Using several measures to evaluate the business allows us and investors to assess our relative performance against our competitors and ultimately monitor our capacity to generate returns for our shareholders. A reconciliation of the adjusted EBITDA to profit for the period is set forth in Appendix VI.

¹ This announcement contains translations of certain Renminbi (RMB) amounts into U.S. dollars (US$) at specified rates solely for the convenience of the reader. Unless otherwise noted, all translations from RMB to U.S. dollars are made at a rate of RMB6.2301 to US$1.00, the effective noon buying rate as of December 31, 2012 in The City of New York for cable transfers of RMB as set forth in H.10 weekly statistical release of the Federal Reserve Board.

² Defined as profit for the period before the net impact of biological assets fair value adjustment and further adjusted to exclude, as applicable, the effects of non-cash share-based compensation, impairment losses on property, plant and equipment and prepayments and offering expenses charged to the income statement.

³ Defined as EBITDA (earnings before net finance income (costs), income tax expense, depreciation and amortization), as further adjusted to exclude, as applicable, the effects of non-cash share-based compensation, the net impact of biological assets fair value adjustment, impairment losses on property, plant and equipment and prepayments and offering expenses charged to the income statement.

⁴ American depositary shares, which are traded on the NASDAQ Global Select Market, each represents 50 ordinary shares of the Company.

⁵ Defined as revenue from sales of respective products in the PRC mainland to external customers

⁶ Defined as cost of inventories sold before biological assets fair value adjustment