Lifecore Biomedical Inc (LFCR) 2004 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Landec's Fourth Quarter and Year end 2004 Earnings Results Conference Call.

At this time, all participants are in a listen-only mode.

Later, we will conduct a question-and-answer session and instructions will follow at that time.

If anyone should require assistance during the conference, please press "*" then "0" on your touchtone telephone.

As a reminder, this conference is being recorded.

I would now like to introduce your host for today's conference, Mr. Gary Steele, President and CEO of Landec Corp.

Mr. Steele, you may begin.

Good morning and thank you for joining Landec's fourth quarter and fiscal year end 2004 earnings conference call and webcast.

I have Greg Skinner with me today, the Company’s Chief Financial Officer who will discuss our financial results in just a moment.

During our call today we may make forward-looking statements that involve certain risks and uncertainties that could cause actual results to differ materially.

These risks are outlined in yesterday's news release as well as in our filings with the Securities and Exchange Commission including the Company's Form 10-K for the fiscal year 2003.

I also want to mention that a replay of this call will be available through next Thursday, July 29.

It can be accessed by calling 888-836-6074 or 703-925-2505.

The access code is 496662.

And the webcast can be available – will be available for 30 days via the Internet at www.landec.com.

As previously disclosed, Landec changed its fiscal year end from the last Sunday in October to the last Sunday in May, effective May 25, 2003 and therefore, the 2004 fourth quarter and fiscal year end, ended on May 30, 2004.

With the results for fiscal year 2004, Landec is reporting its first annual profit which reflects the significant growth in our value added food packaging business.

The impact of our strategy, to exit the fee for service commodity produce business, and our significant reduction of debt.

Landec’s results for the fourth quarter and fiscal year end 2004 were consistent with our goals.

As a reminder we had four primary objectives for fiscal year 2004, first, continue to grow our food and Ag technology revenues, second increase profits, third continue to advance our banana packaging technology and work with banana shippers with a view towards commercially launching our banana packaging technology in fiscal year 2005 and fourth continue to strengthen our balance sheet.

We achieved each of these goals.

Our food technology business grew 23% and our Ag technology business grew nearly 50%.

Our net income from continuing operations increased over five times to $2.9 million.

We are working with banana shippers who are taking responsibility for sourcing the bananas so that we are able to focus on optimizing and scaling our proprietary packaging technology.

Our cash balances increased 43% even after reducing long-term debt by 40%.

Our total debt to equity ratio was reduced to 15% from 23% a year ago.

As a reminder seasonality is inherent in our two core businesses, Apio our food business and Landec Ag, our agricultural seed business.

Apio is subject to produce sourcing issues during the winter months and Landec Ag recognizes nearly all of its revenues and profits during our third and fourth fiscal quarters, while realizing no revenues during their first and second fiscal quarters.

As part of our plan to position for more profitability in June 2003, our food business Apio sold its domestic commodity vegetable business to a group of Apio growers in exchange for future cash payments, a per carton royalty and a long term supply commitment.

The sale of this domestic commodity vegetable business is allowing us to more fully focus on our growth businesses and our opportunities.

Those growth businesses include our value added specialty packaging produce business under our Eat Smart brand and Dole brand our banana packaging business, our agricultural seed business and our supply and licensing business for applications outside of the food and ag arena.

During the past fiscal year we introduced over 50 new food and ag seed products and we have added significant new partners in each of our three businesses.

We will talk more about this later.

Now let me turn the call over to Greg Skinner who will comment on the financial results.

Thank you Gary and good morning everyone.

As outlined in yesterday's news release Landec reported total revenues for the fourth quarter ended May 30, 2004, of $58.4 million versus revenues of $50.7 million for the same period a year ago.

The increase in total revenues during the fourth quarter was due to several reasons.

First, revenue growth in Apio's value added vegetable produce business, which increased 31% to $27.4 million during the fourth quarter compared to $20.8 million in the same period last year.

Second, a 40% increase in revenues from Apio's export trading business which increased to $11.9 million during the quarter from $8.5 million in the same period a year ago, and third, an 8% increase in revenues from Landec Ag seed sales which increased to $14.6 million from $13.5 million during the same quarter last year.

These increases in revenues were partially offset by decrease in Apio’s service revenues to $1.1 million during the fourth quarter of fiscal year 2004 compared to $4.5 million in the same period last year due to the sale of Apio's domestic commodity vegetable business in June 2003.

For the fourth quarter of fiscal year 2004, the Company reported net income of $4.4 million or 17 cents per diluted share compared to net income of $2.6 million or 10 cents per diluted share in the same period last year.

The improvement in our results for the fourth quarter of fiscal year 2004 of $1.8 million compared to the same period last year is primarily due to first, an increase in growth profits from Apio's value added specially packaging vegetable business of $1.6 million and second, a decrease in operating expenses of $1.3 million.

These improvements in operating profits during the fourth quarter were partially offset by a reduction in gross profits from service revenues of $1 million due to the sale of Apio's domestic commodity vegetable business in June 2003.

For fiscal year 2004, Landec had total revenues of $192.1 million compared to $181.3 million during the same period last year.

This increase in revenues for fiscal year 2004 was due to the several reasons.

First, revenue growth in Apio's value added vegetable produce business which increased 23% to $101.1 million from $82.4 million during the same period last year.

Second, from the increase in revenues from Apio's export trading business which increased 45% to $48.7 million during fiscal 2004 from $33.5 million in the same period a year ago and third, a 13% increase in revenues from Landec Ag seed sales which increased to $23.6 million from $21 million during the same period last year.

These increases in revenues were partially offset by first, the decrease in Apio’s service revenues and domestic portion of trading revenues to $16.4 million during fiscal year 2004 compared to 37.6 million in the same period a year ago due to the sale of Apio's domestic and vegetable business.

Second, a reduction in revenue from sale of Eat Smart's bananas of 2.8 million during fiscal year 2004 compared to the same period a year ago primarily due to Apio not selling bananas to retail purchase stores in 2004.

And third an expected decrease in licensing and R&D revenues to 637,000 during the fiscal year 2004 from 2.5 million during the same period last year due to one-time royalty payment in the prior year.

For fiscal year 2004, the Company reported net income from continuing operations of 2.9 million or 12 cents per diluted share versus net income from continuing operations of 489,000 or 2 cents pre diluted share for the same period last year.

The increase in that income from continuing operations during fiscal year 2004 compared to last year was primarily due to increases in gross profits from Apio's value-added vegetable business of 4.3 million, which include the 1.5 million reduction in gross profits from shortages this past winter.

And decrease in operating expenses of 4.4 million.

In addition, net income from continuing operations for the prior year was increased by 436,000 gains from the sale of Apio's fruit processing facility.

These improvements in net income from continuing operations during fiscal year 2004 were partially offset by first a reduction in corporate gross profits from licensing fee and research and development activities of 1.8 million primarily due to one-time royalty payment in the prior year; second, a reduction in gross profits from Apio service revenues and domestic trading revenues of 3.9 million primarily due to the sale of Apio's domestic vegetable business; and third a reduction in gross profits from the sale of Eat Smart bananas of 386,000.

The net loss from discontinued operations for the last year was 1.7 million or 8 cents per share.

This discontinued operations loss resulted from the sale in October 2002 of Dock Resins Corporation, which had been the Company's specialty chemical subsidiary.

In summary, if you exclude the financial results of our licensing activities and the domestic commodity vegetable business, our overall revenues grew 24% during the fourth quarter and 19% for the fiscal year 2004 while corresponding gross profits grew 18% during both the fourth quarter and fiscal year 2004.

Turning to the balance sheet, during fiscal year 2004, our cash balance increased by 2.8 million to 6.5 million.

The increase in cash was primarily due to cash flow from operations of 8.1 million and a 2.4 million reduction in restricted cash.

These increases were partially offset by, first, the purchase of 3.4 million on property plant and equipment; second, the net reduction of long-term debt of 2.6 million; and third, the net reduction of borrowings under the Company's lines of credit of 1.9 million.

As of May 30, 2004, the cash balance was 6.5 million and we had 9.1 million available under our lines of credit.

That concludes my formal presentation.

Let me turn the call back to Gary.

Our focus this past year has been to increase profits, launch new products, and develop new partners.

We have reported the Company’s first full year of net income with earnings of $2.9 million and earnings per share of 12 cents.

We launched 28 new food products and 24 new seed products.

In addition, we have added important strategic partners in each of our three businesses.

In our food business, we have an exclusive license with Dole Fresh Vegetables Inc. to use the Dole label for our North American vegetable products.

We believe the Dole consumer oriented.

Brand complements are Eat Smart retail grocery chain and club store oriented brand.

In our Ag seed business we are now partnering with 7 seed companies to sell to their sales force our coated Early Plant corn product line throughout the U.S corn belt.

In our licensing partnering business we entered into a important collaborative supply relationship with L'Oreal for the sale of Intelimer, polymer additives for use in personal care and cosmetic products, which I will add, are now available in Asia, Europe and now in the U.S.

As we transitioned to fiscal year 2005, we expect higher profits, more commercial product launches, and additional partnering.

Important areas for partnering during the fiscal year 2005 include our banana packaging technology were expect to scale and commercialize packaging products that extend the shelf life of banana.

Our past year has been an important transition for Landec.

We have increased our focus by selling our commodities produce business.

We have also discontinued banana trials, which require us to handle the sourcing, the transporting and the taking title of banana themselves.

Instead, as we enter fiscal year 2005, it is our intent to have banana shipper partners assumed this responsibility allowing us to focus on our unique packaging technology.

Fiscal year 2004 was a year of growth in our specially packaging vegetable business as revenues increased 23% and gross profit increased by 37%.

Notably, sales of our value-added 12-ounce specialty packaging retail product line grew 44% and our value-added vegetable tray line grew 84%.

In fact, according to A.C.

Nielson for the 3 months ended March 31, 2004 Apio's market share per sales of vegetable trays to retail gross restores in the U.S. was 37%, up from 23% at the end of fiscal year 2003.

In addition, we grew our overall seed revenues by 13% with our Intellicoat coated seed products growing nearly 50% year-to-year.

Lastly and very importantly, we continue to strengthen our balance sheet by generating over $8 million in cash flow from operations and reducing long-term debt by 2.6 million.

Fiscal year 2004 was the year of progress for Landec culminating a net income of $2.9 million and earnings per share of 12 cents.

We had numerous achievements this past fiscal year most importantly we were profitable during both the second half of the year and for the full year.

We grew our technology based revenues by 23% in our food business and nearly 50% in our Ag business, while positioning both for continued growth.

We increased our gross profits and our technology based business with food-value added gross profits increasing 37% and the Ag Intellicoat coating gross profits increasing over 100%.

We reduced operating expenses in our food business by $4.4 million.

We increased cash flow from operations to $8.1 million, an improvement of $9.7 million from the prior year.

These results were achieved after facing three challenges to our fiscal year 2004 profit objectives; first, a $1.5 million reduction in gross profits as reported earlier as a result of shortages in produce during this past winter.

We have taken the steps that we can to minimize not to eliminate this risk for the future.

Second, we invested $2.4 million in our banana program during this fiscal year 2004 more than we had projected as it is taking as longer than we've had hoped the transition to our banana-partnering plan.

We have recently transitioned our banana program in a away to significantly reduce our monthly burn rate for conducting trials and selling products.

We are getting there but it's taking us more time to get there than we anticipated.

This is all we can say for now about the banana-partnering situation, though we do have a good partnering plan.

We do expect to partner trial and commercialize our Intelimer packaging products this fiscal year.

And simultaneously lower our self-funded investments in this program.

Third, we expected higher unit sales from our Ag seed business during the latter part of our fourth quarter 2004.

You will recall that we grew 13% in overall Ag seed revenues this past fiscal year and we were targeting a 20% growth.

During the past three years, we saw the opportunity to change our product mix by directly selling seed products with higher value and higher prices.

Correspondingly, we are now selling to larger size farms demanding more technology.

Let me give you some examples of our changing product mix in our Ag seed business with much higher technology content.

In the past 36 months on a unit sales basis our percentage mix of seeds with new genetic traits has increased from 3% to 39%, in that same 36-month period, our percentage of seed unit sales with chemical treatments, chemical supply directly to the seed rather than on the soil.

Those have increased from 0% to 15%, in our percentage of seed unit sales, with our unique [polymer coatings] increased from 2% to 8%.

Our average price per bag of seed has increased in the past 36-months by 30% or roughly $20 per bag.

Just what we had hoped would occur.

Along the way however, we have lost a segment of our smaller farmer customer base which tends to be focused on low prices.

We had hoped, we could maintain a higher portion of these price [oriented] farmers during this past fourth quarter.

We lost a number of them due to our overall higher prices.

As a result our overall unit sales were lower then our internal plans.

We have our initiatives now in place to increase out total customer base large and small in this fiscal year, using our Fielder's Choice Direct selling channel and to continue our emphasis of selling higher value, technology oriented seed products through our direct channel with products that have new traits polymer coatings and chemical treatments.

Our Ag seed revenues today represent about 12% of our total revenues and in fiscal year 2005, we expect our Ag business revenues to grow 15% to 20% along with gross profits increasing 20% or more.

We continue to receive very positive feedback from farmers and dozens of articles have been written about our Intellicoat seed coating technology and its benefits this past year that we now have a small direct sales force as part of our Landec Ag business selling our polymer coating products.

As we looked at fiscal year 2005 we have four primary goals.

First, to grow our value added specially packaged food business with a strong emphasis on retail grocery chains both regional and national.

Second grow our Ag seed customer base and corresponding revenues for all of our seed products.

Third, commercially launch our banana packaging technology, with partners in at least two product formats and fourth, continue to add strategic partner relationships in each of our businesses.

We started our 2005 fiscal year in June.

We have several challenges as we enter our new fiscal year including projected increases in our raw material produce and packaging costs for our food business which are factored in to our plans.

As for growth drivers in our specially packaging produce business we will focus primarily on branded products for the retail grocery market, where we do see substantial opportunity to expand our store presence as well as expand our presence in food service.

It is difficult for us to forecast how rapidly we can grow our banana packaging sales with new partners, as these plans are not finalized.

As a result we think it is prudent to develop a conservative plan and to report a conservative plan for banana packaging business for fiscal year 2005 that projects a loss of approximately $1 million which while substantially both below the fiscal year 2004 loss of $2.4 million to still a drag on earnings.

Can we do better in bananas, we think so.

But this will be a function of the timing and the quality of our partnering efforts in the banana program.

We will update our out look over the next couple of quarters.

In summary for fiscal year 2005, we plan to increase revenues to over $200 million and at least double our net income compared to fiscal year 2004.

We continue our commitment to grow profitably and to deliver highly differentiable branded products that provide increasing value to our customers in order to enhance shareholder value.

We appreciate your ongoing support and will now open for questions.

We are open for questions.

Thank you sir.

If you have a question at this time, please press the "1" key on your touchtone telephone.

If your question has been answered or you wish to remove yourself from the queue, please press "#" key.

Our first question comes from Elizabeth [inaudible].

Our first question comes from Elizabeth [inaudible] .

Wanda, could we move on for the next question, please?

Our next question comes from Lenny Brecken of [Brecken Capital] .

Can you just address the anticipated market share losses of the warehouse clubs?

Lenny there was a realignment of the distribution centers of one of our customers and we took a little bit of a hit on that about 4% to 5% of what, volume I guess in the club stores.

And what we were hoping as part of our upside for this year is to regain that in new distribution center openings from that same customer but we can’t predict that point.

As you know, or may know there was also a significant strike in Southern California of some retail grocery chains and that club store chain had some rather big increases in their sales in fiscal year ’04, that strike has been settled the, we can’t anticipate that type of growth in ’05.

I am sorry so that there was a – just because there was strike you don’t think its – that that business is growing back.

What does the strike have to do with the ongoing?

The strike was in the retail grocery chains, the club stores picked up that share during that strike.

Okay.

I see.

I see.

And then the -- can you just elaborate on the distribution, issue again.

That there was a change in distribution and –?

What -- every now and then chains whether it be club store or retail, shuffle the deck so the stake in terms of their distribution centers and they carve them up differently and their geographic territories differently.

And when that happened we ended up having some new distribution centers that had lower stores and we anticipate lower volumes.

All right so you basically got this place?

Not someone else?

We [used] force than we had before with that customer.

Now remember we are in a pretty high market situation in our club store was about 60%, market penetration was same as in [inaudible] .

Okay my last question has to deal with the consistency.

Management has been continually criticized with a lack of consistency in the numbers.

You have effectively taken out the – well dramatically minimized the winter effect on your farming business I think this past season, but yet we are still not seeing a good amount of consistency, particularly this quarter where earnings were below expectations, I mean what can you say to reassure investors that that problem will be addressed?

The fourth quarter, disappointment for us was primarily in the seed business and which as I mentioned earlier Lenny, had to do with our focus on moving up our customer base to larger farmers, technology orientation, higher value, higher prices.

We now have identified 40,000 targeted prospects and customers that we think got lost a little bit in this move up the value chain.

We have a direct approach to go after those and we are projecting 15% to 20% growth in our top-line Ag seed business and we feel pretty bullish about that.

That’s where we were hurt in the fourth quarter regarding the weather, we've taken all the steps that we can [barring] a major catastrophic weather losses of produce I think we are in good shape for that for the New Year.

So I think that in terms of weather related events, I think we are in good shape going forward and we have a good plan to grow our business in the seed area.

Hard to factor in is the influence in this last -- latter part of the fourth quarter in terms of soybean prices versus corn prices, but if you follow commodities soybean prices ran up pretty dramatically and they were some of our targeted customers that switched from corn to soybean they seems to be back into a more normal situation we sell corn, we don't sell soybean.

So I think that that will help us last but not least if you followed the corn belt weather this last planning season, which we just finished, it was pretty horrible.

Watering, flooding and farmers we hope will and think will remember that as they make their seed purchases this next fall and we'll remember the polymer coating as a way of protecting them for this next go around.

Okay.

Thanks, guys.

Alright..

Next question.

Our next question comes from Bill Gibson of Nollenberger Partners.

Yeah.

A couple of questions, one in the Dole branded name, what's your confidence level of securing some regional and national change not putting the time line on it?

Modest.

And what's the -- what's behind that, what's the feedback do you get from these guys?

The feedback we get is that in some of the distribution centers we have gone into the brand makes a different, Bill, and the consumer recognizes.

And then in others, we haven't seen a difference and we have some cases where we have been in Eat Smart and now with Dole and Norac and we don't have a definitive answer yet and that's why I had to answer your question the way I did.

We are going to add it; we like this Dole brand approach.

When we were first starting out the Dole branded approach was significantly higher priced than Eat Smart and we've gotten that more in line.

So that aberration is not affecting or influencing market penetration.

But we don’t have a definitive opinion yet on how well that brand is helping us other than it certainly gets us in some doors, but I would like to have some more experience with it before I can give you a better answer.

Sure, now we have greater growth in the fourth quarter than we did for the year for value-add was Dole up large part in driving that or was it the vegetable trays?

It was more of Eat Smart brand at this point, Bill, and the tray business is really taken off.

We have worked hard to change the whole category in the United States from thinking of a tray product as a holiday luxury to positioning our tray products.

We have a whole of family tray products now; small, large, medium etc. different price points that have people thinking about tray is more routinely in terms of buying and purchasing in consumption.

So I'd say fourth quarter was very much the tray business not party tray but tray business and the fact that we've got a damn good product line.

And I will let somebody else ask about bananas, What I want a zero in on are other licensing opportunities in the next 12 months and a related question, were you got -- you have license the dental company and then Alcon of course has a license on a dry Ag product, can you give us progress reports on that likelihood of any income out of those sources

Okay, there were a couple of question there.

We expect to have new partners in our licensing and supply business in fiscal year '05.

They are in the works there is development cycle.

I will tell you without saying too much that the L'Oreal program, which is now moved from just an Asian product introduction to now a global introduction on some of their creams and lotions, has caught quite a bit of visibility among other participants in the personal care cosmetics side.

You will recall that L'Oreal is not exclusive, so let me just say that that is certainly an area of opportunity and focus for us for further partnering.

Regarding our dental program, I don’t expect any significant revenues in that program in fiscal year '05, if that still in development in clinical stuff etc.

Regarding out Alcon, I don’t know where they are and I don’t know this is taking a long time for the FDA to review this application.

We don’t know the details of it.

And we have nothing in our plans for '05 because it would be a mistake to anticipate something that hasn't happened yet.

So new partners, yes, significant royalties or revenues from Alcon or dental partner, we don’t expect them.

Could that be an upside?

Yes, we have six fairly significant upsides in our plans or to the plan.

But we don’t want to anticipate them or count on them now.

One of those six upsides is the new partnering and potentially maybe with a little bit of luck here something will happen in a positive way with the outcome.

Good.

Thanks.

Thank you, Bill.

Our next question comes from Cory Baldwin (phonetic) of Weichardt (phonetic) Research.

Good morning, Cory (phonetic).

Good morning guys.

The first, couple of question I have, are there any planned product launched for next year with Eat Smart and Dole?

Yeah, we -- if you look at our history, Cory, to stick to consistency we have consistently launched somewhere between 12 and 24, 25 products -- new products a year in our food business.

And we don’t see any slowing down of that activity.

And yes, we would be launching them both under the Eat Smart and Dole label.

Okay.

Then second in the seed business are you guys have the disappointment seeing only 8% growth.

Is there any plans to provide lower cost feedback to target those customers that there the farmers that you lost at higher prices or?

Yeah.

Very good question.

First of all the growth was 13% not 8% and yet we want a 20%.

I mean 8% yeah for the quarter, 13 for the year.

I see.

Okay.

Thank you.

Anyway we’ve been very interested in adding more value in our seeds.

We see seed as a delivery system now, not just the product in itself and we see -- we believe that we will be selling 50% or more of our bag seeds we'll have new genetics in it.

We have a license from Monsanto to incorporate new genetics into our products and that is very much in demand.

We see a further increasing of chemical treatments going on the seed as opposed to being applied in the soil.

There are lot of advantages cost and environmental etc.

And we obviously now with incorporation of our own direct sales force and the use of the sales force of 7 seed companies we expand -- plan to expand our polymer coatings, but all of this is moving price and value up.

We have the ability with our direct channel, Cory, to segment the market and to have a group of products that can recover and expand the smaller farmer to medium-size farmer that frankly we -- we kind of lost here in the last year too.

Yeah.

We are going to be all over that identified -- I said we identified 40,000 targets.

We have the database of 300,000 farms with quiet a bit of information.

We've got a good way of getting added.

We just have to expand our sight here a little bit and not forget this small and medium farmer.

And they got lost a little bit as we worked hard to move up this value change.

And so is that -- 40,000 is that just and small and medium size?

Yeah, predominantly people that have raised their hands somewhere over the last few years and said they were interested in our products.

But they tended to be initially looking at us on price only.

We have the ability to [lead] the price separately, differentiate separately.

We have products that we can now emphasize that don’t have all the razzmatazz on it, so that s what we'll do.

Okay.

And then another quick question regarding L'Oreal That is not an exclusive but I know that since I am talking to you guys in the past and you guys didn’t have really any plans to get any new partners was that just because you didn’t want to upset L'Oreal is would partnering with another cosmetic company kind of [deepens] relationship with L'Oreal?

No.

No?

No.

We don’t believe so and they are good partner and we are growing with them and expanding with them.

But we do have the right to work others and we will.

And thus there is no indication that if you guys do use another cosmetic company that they will of pulled back?

There is no indication.

Okay, okay.

Well I guess that's about it, thank you.

Thanks.

Our next question comes from [inaudible].

Hi.

Good morning Michael.

Good morning I have couple of question on the seed side, first your percent of sale are a direct versus indirect, secondly if you go on through unit growth versus percent of growth that came from unit volume versus pricing and if you can just elaborate further on your decision to move upstream, who you need to take share from does that compare you know, in terms of the competitive landscape does that change and I guess that's it so those three questions?

Let me take a couple of those and Greg why don’t you take one of those.

We sell close to 100% I am trying to think of the exceptions here almost a 100% of our products were sold to the direct channel, Michael, and that’s using -- we have historically sold not only our uncoated seeds but our coated seed products through our direct channel called Fielder's Choice Direct.

There all the seed consultants are sitting in a big room in Monticello, Indiana, in front of computer screens we send out over $4 million of direct marking materials, people coming to us telephonically, electronically we have a proprietary database that recognizes that phone number, brings it to the right seed consultant, blah blah.

So that’s how we sell our products.

As we mentioned earlier in our coated seed products in particular earlier plant corn seed which we think is a you know, a market changing type of a technology we think that we need to leverage our own sales force and use others sales forces.

So we are working with seven seed companies.

The total seed product information will go into their catalogs and they will be selling our technology through their sales force this next spring.

So that 100% will no longer be a 100% but how that mix will change I can't tell you.

What kind of margins do you get on the indirect business versus the direct?

We are -- just think of us as 40% gross -- 39%, 40% gross margins.

Okay.

In general.

All right, now let’s see that was one of your questions --

I think the other one was percent of revenue growth that came from unit volume versus pricing?

We didn’t have the unit volume that’s what I mentioned in our press release.

Our growth came in a mix change with more technology that led to a higher average sales price, we didn't have ---

Right, so were unit volumes down or was it, was it flat -- ?

Unit volumes were down to flat -- slightly down to flat and that because we lost segment of that price conscious smaller farmers that I mentioned earlier.

Right.

Our plans for '05 are to grow customer base, unit volume, get the plans in place, sales seasons have just kicked off, we have got - we are not be getting the small mean price farmers this next time around and so we see growth in units and in dollars.

Okay.

And then the last question, had to deal with your strategy to move upstream and you know who the competitors are there that you need to share from and you know how that -- you think that plans out?

Okay.

There are really three major seed suppliers Pioneer which is own by DuPont, [inaudible] which is owned by Monsanto and then Syngenta owned Northup King or NK, and they just made a couple of acquisitions of some other players so the – sorry for the redundancy but the [debt] shares are getting reshuffled here a little bit and there is about 300 small seed companies, and we are the 8th or 9th largest.

We are probably now the 8th largest seed company.

So our growth is come from all quarters.

Not just the smaller guys but all size.

And the reason is we have cost effective way of selling, we can carry our message directly to the farmer as opposed through multiple layers and filters which the farmer – the traditional farmer dealer network has that problem and let me just say that, I mentioned to you that we are interested in partnering in all our businesses.

There is quite a bit of activity.

Partnering in this Ag seed business and we are going to be a part of that.

You are going to be hearing about our partnering plans and some of our actual partnering [inaudible] in the 2005 in the seed business.

Okay and in terms of pricing versus DuPont and Monsanto, like for like seeds so technology wise?

We are lower because we have less – we don’t have middle men we don’t have jackets and the hats and – we have got a lower cost structure and we tend to pass them on to the farmer.

Okay.

Great, thank you very much.

Michael, yeah.

We have follow-up question from Lenny Brecken of Brecken Capital.

Okay, he must have withdrawn his question.

If you have a question please press the "1" key.

We have a question from Tony Brenner of Roth Capital.

Morning Tony.

Good morning.

Actually you just talked about what I want to ask you.

But I wonder if you can elaborate just a little bit more on the opportunity for partnering on the – in the Ag business.

You have said for a while that you have got seven partners, for early planned corn.

Are these the major seed companies or are they are some of the smaller seed companies and you are still trying to partner with some of the larger ones, and is this a one way partnering opportunity in terms of these seed companies will market early planned corn under their own brand names, and will they be competing with you for that same customer base and, if that’s so how exactly will this benefit you?

And so on.

Tony if I can’t remember all those questions please help me and remind me, but let’s start with; no it's not a one way street.

We are developing relationships with big and small seed companies.

Nominally to have them help us sell our coating technology.

But also we are interested in routing.

We don’t have to have all of our own products that go through our direct channel.

We can have other people's products come through our channel.

And so we see this as a two way street.

Second question is, of the seven partner's one or two are on the bigger side and the rest are in what I call the medium sized category.

Third question is would they be selling the early planned corn under their brand.

Yes.

You know but it’s if that – but we have just like Intel-inside and Pentium-chip inside, it is recognized as having Intellicoat technology.

Were there some more questions?

Will it matter to you whether Fielder's Choice sales to given a farmer or pioneer does -- I mean will you make less or more or?

When you have -- you know, you've got -- you know, we are talking about a $2 billion corn seed business.

We have a fraction of a percent of the market share.

We don’t care frankly economically if that comes from Fielder's Choice Direct or from the seed partners.

We have the margin potential from both and when you are at this smaller share the more the merrier and we can’t -- as I said, I think we are going to tend overtime to be probably going after a slightly different customer, but if there is little bit of conflict, great.

Love that, bring it on.

Okay, and lastly are these partnering agreements for Early Plant corn only or is there in opportunity in these agreements to move beyond that to other of your products?

We have Early Plant corn only right now.

But we are working in R&D.

We've spend a million bucks as we speak on developing new coating products that will move beyond Early Plant corn to other configurations we are in.

We are interest in soybean corn, canola etc.

So these seed companies tend to participate in more areas than just corn.

So we see expanding these relationships overtime.

But let’s get Early plant Corn right.

Let’s show them how this works for their customers and our own customers.

And so I see these relationships expanding as well as the two-way street.

We liked -- you know, we've got, I think a couple of years ago no one gave a hood about Fielder's Choice Direct; no one put much credence to this direct approach and direct channel.

And I think everybody is having to revisit this subject of channels and the efficiency of channels and our concluding that they've got may be dinosaur on the hands with this farmer dealer network.

And So, I see it a two-way street, Tony.

So lastly the number of seed companies working with Pollinator Plus move from about where you were in Early Plant corn too I think around it is 40, currently could the same -- or do you expect the same type of progression over the next two years in Early plant corn?

And might you be working with 40 seed companies two years from now?

I would be surprised if it was that fast.

I would like to see 7 to 14, 14 to 24 that kind of progression and the reason is it is a major marketing effort to communicate to farmers that they can plant their seed and we had farmers planting seed as early as late February all through March.

And you know farmers haven’t done that before and this last spring really helped our cost because there was flooding everywhere and guys were already in and the field trails looked terrific.

So, but I don’t see 7 to 40 in rapid fire and one of the issues is how fast we can support these folks.

We got to support them with technical service and training.

So I will have a 7 to 14, 14 to 24 cents something like that I think would be more realistic.

Okay, thank you.

Thank you Tony.

We have a follow-up question from Cory Baldwin (phonetic) of Weichardt (phonetic) Research.

Hi, guys.

Two quick ones here. [inaudible] seed line, do you see somebody kind of [apply] your direct channel because of the dinosaur that you are relating to it, you know, the dealer network?

Well, I think that’s the possibility, Cory, I wouldn’t be stunned and surprised that people who are interested either complementing their dealer channel or frankly substituting it, but I don’t want to put the card before the horse here.

Let's show that we can grow this business in units and dollars to serve the small, medium and large sized farmer.

But let's just say that there is more interest and activity in the seed business today than there has been for the last 4 to 5 years.

People were so concerned in investing in new genetics -- in genetic engineering, and there is some shake out in all that because there is only a few winners in that battle; and as you know there’s been a pushback in Europe and I think a number of this companies are building up cash and wondering what to do next and I would assume that they are going to look not only new technology but new channels.

: Would you guys be opposed to an offer like that then?

We do things to enhance our shareholder value and to represent their interest and whatever leads to that end results we'll entertain.

Okay.

And then another kind of shifting focus here when can we expect to see commercial banana sales the first quarter, first half, second half of '05?

The honest answer is I can’t tell you and the reason is that we put all our future emphasis on this program into our partnering approach and that's going to be a function of the aggressiveness and the timing of which we select partners, get it up and running announce it and streamline the applications for the targets that the partner and we are interested in.

And I know that's [probably] good but I can't tell you.

Can be doing you this service to tell you which quarter.

Did that take your longer because they've just not seen the benefit or why, I guess, why is it been extended on to the future with L'Oreal (phonetic).

You know, our partners both from a use point of view and supply point of view are larger companies and we want to get it right and we want to make sure that things are right for both parties and it is just taking longer but it's going to happen.

Okay.

I think it would be better for us to tell you when things happens as they happen rather than to try to predict exactly how this is going to turn out.

Okay. thank you.

Thank you.

Our next question is from Craig Salinger (phonetic) from Wealth (phonetic) Capital Management.

Cory, just sort of got to some of the essence of my questioning including timing over the banana launch.

You also mentioned in two formats what are the leading formats at this time?

We're certainly not going to talk about the formats, but we are looking at everything from a small consumer bag that's taken home to gigantic packages.

So there is a myriad of different configurations Craig and it would be not in our shareholders interest to talk specifically about what format, but it will be more than one.

Well you did mentioned two, did you not?

You said launched two formats this year?

I said our goal is to launch at least two formats.

Okay.

And this partnering approach, does that lead to your partners making those decisions rather than you?

No we do this jointly.

Okay and the expected $1 million loss, does that include some level of sales or is that still investment spending?

It includes some of that -- very, very modest sales and I mentioned earlier that we have six upsides to our – what we believe should be a conservative plan for ’05.

Obviously that’s one of the big ones.

Six upsides for the Company overall and bananas is one of them.

Does that mean – is that what you mean?

That’s right.

Okay.

Congratulations on a great profitable year.

Thank you.

Thank you.

And we have a follow-up from Lenny Brecken of Brecken Capital (phonetic).

Guys -- I just need to -- for the banana program.

Just give me the – in the next 12-months the milestones that we may look for?

Announced partnering, launched products.

All right, the partnering – okay and that the timing you think is it on those milestones will be more towards the first half or second half?

My impression is that the launch was supposed to be before the fourth quarter of fiscal ’05 but I may be mistaken.

I did this close–

I would like to be – I would like to believe and I—we’re acting towards the first goal being accomplished in the first half the second goal being accomplished in the second half.

I am sorry.

Specifically what?

Partnering in the first half

Okay got you.

In the second half.

It could can conceivably go better.

Alright, what's been you know the early feed back, what are the -- what is the whole, I mean the partners, what are they looking for.

We know the product works.

I mean at least [inaudible], I mean what are they actually looking for as the catalyst to for this thing to happen to go forward?

So?

Well you know, I mean we are thinking.

Just give us you know.

I mean what is not to happen, what if these turn around to be in negatives, you know for it not to happen on the time table that you described.

What would have to happen?

I mean is it cost, is it --

No.

I think its more you know, you have dealt with partnering, I think parties have to agree to terms and the rightful responsibilities of each party, and working out details of partnering and things like that.

So I think its more in that arena.

Okay, so structure of the agreement.

More than anything any else.

More than that direction, yes.

And you know just with technology really works.

I think its more --

And there is no concern about the added cost to the product?

Sure there is, of course.

Bananas are a commodity business.

They are sold primarily on a cents per pound basis.

Everybody has to be concerned about that and that’s why we spend so much money and time trying to do trials and at least give early indications of the economic benefits.

Those really will come over the next couple of years.

When you have got full scale commercial sale and production etc. etc.

So yes absolutely and you know there is that.

Secondly you have got markets.

You have got the old classics existing markets currently served versus new markets that are not developed, and not served.

So you’ve got that kind of thinking that needs to go into these plans?

Yeah, that is I know, it was the two points of focus where does it work and I think maybe your partners and your retailers are convinced of that I think at this point in the plan.

The second part is the added cost.

I mean is the added cost still a significant enough point of concern to say, it may -- probably it may not go forward because of the cost?

Or are they still concerned about they are – I mean it’s all the matter of agreeing on a price among mutual parties?

Lenny I -- all I can say is that we will all have to watch this cost issue and you know remember, when you’ve got a small amount of bananas and you got our technology, you are spreading more cost per pound a over smaller unit than a larger unit.

So obviously we are looking at markets initially that can handle some price increase, and cost increasing and we are looking at product formats etcetera.

I couldn’t possibly let you think that cost and price is not an issue, but I really do believe we are going to work through that.

I don’t think that’s going to be the stumbling block.

Okay.

That’s exactly what I was trying to get out you.

Thank you.

Thank you.

Sir, I am not showing any further questions at this time.

Well we thank you all.

Thanks for joining us today in our conference call.

Ladies and gentlemen, thank you for participating in today’s conference.

This concludes the program.

You may all disconnect.