Yongye International Announces Fourth Quarter and Full Year 2011 Financial Results

BEIJING, March 15, 2012 /PRNewswire-Asia-FirstCall/ -- Yongye International, Inc. (NASDAQ: YONG), ("Yongye" or the "Company") a leading developer, manufacturer, and distributor of crop nutrient products in the People's Republic of China ("PRC"), today announced its financial results for the fourth quarter and full year ended December 31, 2011.

Full Year 2011 Financial Highlights

• Revenue increased 82.3% to $390.4 million in 2011 from $214.1 million in 2010
• Gross profit increased 91.4% year-over-year to $228.3 million
• Income from operations increased 76.6% to $105.6 million from $59.8 million in 2010
• Net income attributable to Yongye increased 75.2% to $84.9 million, or $1.55 per diluted share, compared to $48.4 million, or $1.05 per diluted share, in the same period of 2010
• Adjusted net income attributable to Yongye, which excludes non-cash expenses related to share-based compensation for management and independent directors, the amortization of the acquired Hebei customer list, and a change in the fair value of derivative liabilities, was $93.0 million, or $1.71 per diluted share, compared to $54.1 million, or $1.17 per diluted share, in the same period of 2010*
• Operating cash outflow was $31.2 million in 2011 compared to an operating cash inflow of $15.9 million in 2010

Fourth Quarter 2011 Financial Highlights

• Revenue increased 60.3% to $44.9 million from $28.0 million in the fourth quarter of 2010
• Gross profit increased 78.5% year-over-year to $23.7 million
• Loss from operations was $7.8 million, compared to income from operations of $3.5 million in the fourth quarter of 2010
• Net loss attributable to Yongye was $2.2 million, or a loss of $0.05 per diluted share, compared to a net income of $2.2 million, or $0.05 per diluted share, in the same period of 2010  
• Adjusted net loss attributable to Yongye, which excludes non-cash expenses related to share-based compensation for management and independent directors, the amortization of the acquired Hebei customer list, and a change in the fair value of derivative liabilities, was $0.5 million, or a loss of $0.03 per diluted share, compared to a net income of $7.4 million, or $0.15 per diluted share, in the same period of 2010*

Mr. Zishen Wu, Chairman and Chief Executive Officer of Yongye, stated, "We are proud of the progress we continue to make in growing Yongye's business.  The company has worked diligently to drive higher penetration in our traditional markets, including Jiangsu, Heilongjiang, Jilin, Liaoning, Hebei, Inner Mongolia, Henan and Guangdong, which contributed to 50% of our revenue growth for the year. In these existing provincial markets we continue to see more effective management of our distribution channels including better execution of our retail marketing program, increasing adoption from large farms and higher frequency training seminars in various locations throughout the year.  We are also having success in further developing our retail network in new markets throughout China, including Yunnan, Jiangxi, Sichuan, Shaanxi and Anhui."

Full Year 2011 Financial Results

Sales increased by $176.3 million, or 82.3%, to $390.4 million for the year ended December 31, 2011, from $214.1 million for the same period of 2010. For the year ended December 31, 2011, $286.8 million, or 73.5% of total sales, was derived from existing provincial markets, and $103.6 million, or 26.5% of total sales, came from the newly developed provincial markets, where the Company started to actively market since 2010. The newly developed provincial markets primarily included Yunnan, Jiangxi, Sichuan, Shaanxi and Anhui. During 2011, the number of branded retailers reached 30,086, compared to 24,036 as of December 31, 2010, an increase of 25.2%.

Gross profit was $228.3 million for the year ended December 31, 2011, compared to $119.3 million for the year ended December 31, 2010, an increase of 91.4%. Gross margin was 58.5% for the year ended December 31, 2011, compared to 55.7% for the same period of 2010.  The increase in gross margin was mainly due to the fact that the Company's Wuchuan Facility was put into operation in the fourth quarter of 2010, which enabled the Company to start using lignite coal as the key raw material, thereby bypassing intermediaries from whom the Company used to purchase humic acid. The Company recorded non-cash expenses of $2.8 million related to the amortization of the acquired Hebei customer list as part of its cost of sales for the full year 2011.  Excluding the aforementioned non-cash expenses related to the amortization of the acquired Hebei customer list, full year 2011 adjusted gross profit was $231.1 million, or 59.2% of sales.*

Selling expenses increased by $33.3 million, or 81.9%, to $73.9 million for the year ended December 31, 2011, from $40.6 million for the same period of 2010. The increase in selling expenses was primarily due to (i) an increase of $30.7 million in advertising and promotion expenses, and higher expenditures related to distributors' seminars, due to increased sales and (ii) an increase of $2.7 million in transportation expenses, also due to increased sales.

General and administrative ("G&A") expenses increased by $21.7 million, or 155.0%, to $35.7 million for the year ended December 31, 2011, from $14.0 million for the same period of 2010.  The increase in G&A expenses was mainly due to the impact of bad debt expenses of $15.0 million, the implementation of the management equity compensation plan, which resulted in an increase in compensation expenses of $1.7 million, an increase in employee salaries of $1.5 million, as well as an increase in meeting expenditure, staff training expenses and general maintenance expenses.

Research and development ("R&D") expenses were $13.1 million for the year ended December 31, 2011, compared to $4.9 million for the same period of 2010. The increase in R&D expenses mainly consisted of field test expenses for new crops and newly developed markets as well as new product development expenses.

Operating income was $105.6 million, or 27.0% of sales for the year ended December 31, 2011, compared to $59.8 million, or 27.9% of sales, in the same period of 2010. Excluding non-cash expenses related to share-based compensation for management and independent directors and the amortization of the acquired Hebei customer list, full year 2011 adjusted operating income was $114.5 million, or 29.3% of sales.*  

Net income attributable to Yongye was $84.9 million, or $1.55 per diluted share for the year ended December 31, 2011, compared to a net income of $48.4 million, or $1.05 per diluted share, in the same period of 2010. The Company recorded a non-cash income related to a change in fair value of derivative liabilities of $719,085 in the full year 2011. Excluding the impact of non-cash expenses related to share-based compensation for management and independent directors, the amortization of the acquired Hebei customer list, and a change in the fair value of derivative liabilities, adjusted net income attributable to Yongye for the full year 2011 was $93.0 million, or $1.71 per diluted share, compared to $54.1 million, or $1.17 per diluted share in the same period of 2010.*

Fourth Quarter 2011 Financial Results

Sales increased by $16.9 million, or 60.3%, to $44.9 million in the fourth quarter of 2011, from $28.0 million for the same period of 2010. In the fourth quarter of 2011, $29.7 million, or 66.2% of total sales, was derived from existing provincial markets, and $15.2 million, or 33.8% of total sales, came from the newly developed provincial markets, which the Company started to actively manage since 2010. The newly developed provincial markets primarily include Yunnan, Jiangxi, Sichuan, Shaanxi and Anhui. During the fourth quarter of 2011, the number of branded retailers increased from 29,307 to 30,086. The number of branded retailers as of December 31, 2011 increased 25.2% compared to the end of December 31, 2010.

Gross profit was $23.7 million in the fourth quarter of 2011, compared to $13.3 million in the fourth quarter of 2010, an increase of 78.5%.  Gross margin was 52.7% in the fourth quarter of 2011, compared to 47.3% for the same period of 2010. The increase in gross margin was mainly due to the fact that Company's Wuchuan facility was put into operation in the fourth quarter of 2010, which enabled the Company to start using lignite coal as the key raw material, thereby bypassing intermediaries from whom the Company used to purchase humic acid. The Company recorded non-cash expenses of $0.7 million related to the amortization of the acquired Hebei customer list as part of its cost of sales for the fourth quarter of 2011. Excluding the aforementioned non-cash expenses related to the amortization of the acquired Hebei customer list, fourth quarter 2011 adjusted gross profit was $24.4 million, or 54.3% of sales.*

Selling expenses increased by $9.1 million, or 377.8%, to $11.5 million in the fourth quarter of 2011, from $2.4 million for the same period of 2010. The increase in selling expenses was primarily due to advertising costs associated with branding programs and commercials.

General and administrative ("G&A") expenses increased by $11.0 million, or 156.9%, to $18.0 million in the fourth quarter of 2011, from $7.0 million for the same period of 2010.  The increase in G&A expenses was mainly due to the impact of a bad debt expense of $15.0 million.

Research and development ("R&D") expenses were $2.0 million in the fourth quarter of 2011, compared to $0.3 million for the same period of 2010. The increase in R&D expenses mainly consisted of field test expenses for new crops and newly developed markets as well as new product development expenses.

Operating loss was $7.8 million in the fourth quarter of 2011, compared to operating income of $3.5 million in the same period of 2010. Excluding non-cash expenses related to share-based compensation for management and independent directors and the amortization of the acquired Hebei customer list, fourth quarter 2011 adjusted operating loss was $6.0 million, or 13.3% of sales.*  The decrease in profits from operations was mainly due to the impact of a bad debt expense of $15.0 million.

Net loss attributable to Yongye was $2.2 million, or a loss of $0.05 per diluted share in the fourth quarter of 2011, compared to a net income of $2.2 million, or $0.05 per diluted share, in the same period of 2010. The Company recorded non-cash income related to a change in fair value of derivative liabilities of $185,835 in the fourth quarter of 2011. Excluding the impact of non-cash expenses related to share-based compensation for management and independent directors, the amortization of the acquired Hebei customer list, and a change in the fair value of derivative liabilities, adjusted net loss attributable to Yongye for the fourth quarter of 2011 was $0.5 million, or a loss of $0.03 per diluted share, compared to adjusted net income of $7.4 million, or $0.15 per diluted share in the same period of 2010.*

(*) See the table following this press release for a reconciliation of gross profit, income from operations, net income and diluted EPS to exclude non-cash items related to share-based compensation for management and independent directors, the amortization of the acquired Hebei customer list, and a change in the fair value of derivative liabilities to the comparable financial measure prepared in accordance with US Generally Accepted Accounting Principles ("U.S. GAAP").  

Financial Condition

As of December 31, 2011, the Company had $81.2 million in cash and restricted cash, compared to $41.9 million as of December 31, 2010. Working capital was $270.4 million, compared to $124.3 million at the end of 2010. Accounts Receivable increased by $127.5 million on a year-over-year basis, which was consistent with the Company's strong sales growth in the year ended December 31, 2011. The significant increase was attributable to (i) a substantial sales increase of $176.3 million, from $214.1 million in 2010 to $390.4 million in 2011, which represents an increase of 82.3%; (ii) in 2011, we experienced significantly more sales in September, October and November than the corresponding months in 2010, which have historically been non-peak season months and on which we expect to collect in the first and second quarters of 2012 based on the credit terms offered to our distributors; and (iii) the significant increase of accounts receivable turnover days from 27 days in 2010 to 90 days in 2011, due to the fact that China tightened its monetary policy and our distributors took full advantage of our six month credit term. We recorded an allowance for doubtful receivables in the amount of $15.2 million as of December 31, 2011. Subsequently, we have collected approximately $73.0 million of total account receivable as of March 15, 2012. None of our distributors has any dispute on any outstanding account receivable.

The Company had a $28.3 million short-term bank loan and $7.5 million in long-term debt as of December 31, 2011.  Stockholders' equity totaled $331.9 million as of December 31, 2011, compared to $225.1 million at the end of 2010. Cash flow used by operating activities was $31.2 million for the year ended December 31, 2011, and net cash provided by operating activities in the year ended December 31, 2010 was $15.9 million. The changes were primarily due to the increase of $103.7 million in working capital employed, which was primarily driven by higher accounts receivables, but was partially offset by utilization of deposits to suppliers for the year ended December 31, 2011 as compared to 2010. Other factors include an increase of $38.5 million in earnings and a non-cash expense of $6.1 million for management stock compensation.

Recent Developments

• On March 5, 2012, the lead plaintiffs in the previously announced class action lawsuit filed against the Company by Robbins Geller Rudman & Dowd LLP in the United States District Court Southern District of New York in May 2011 voluntarily dismissed by the suit with prejudice as to themselves as named plaintiffs. Yongye did not incur any material legal fees, charges or costs related to this class action lawsuit or its voluntary dismissal.
• In August 2011, Yongye Fumin, a wholly-owned subsidiary of Yongye Nongfeng, the Company's main operating entity in China, obtained government approval for a mineral resource exploration permit for its designated project site in Wuchuan, Inner Mongolia, China. The permit gives Yongye exclusive exploration rights for the 29.74 square kilometer project site for an initial period of three years effective August 2, 2011. It allows the Company to conduct exploration of the project site to obtain the remaining government approvals in order to fully acquire mineral rights to the project site.
• On June 20, 2011, Zishen Wu, Chairman and Chief Executive Officer of Yongye International, completed the purchase of $3.0 million worth of shares of the Company's Common Stock in open market transactions pursuant to a Rule 10b5-1 plan. The weighted average purchase price was $5.40 per share. The share purchase demonstrates Mr. Wu's confidence in the Company and his belief that the shares are currently undervalued.
• In June 2011, the Company closed the announced $50 million equity investment by MSPEA Agriculture Holding Limited ("MSPEA"), an affiliate of Morgan Stanley, and also announced the appointment of Mr. Homer Sun, Managing Director of Morgan Stanley who leads Morgan Stanley Private Equity Asia's China Investments, to the Board of Directors of the Company.

Business Outlook

For the full year 2012, the Company expects revenue of between $495 million and $515 million and adjusted net income between $110 million and $120 million, which excludes the impact of non-cash expenses related to share-based compensation for management and independent directors, the amortization of the acquired Hebei customer list, and a change in the fair value of derivative liabilities. In 2012, the Company expects strong growth of revenue in traditional markets like Henan and Guangdong and in new markets like Shaanxi and Sichuan. The Company also expects to fully launch two new products in 2012. One new product will help crop seeds to sprout and grow, and the other will improve the crop roots' ability to absorb the water and fertilizers and to enhance the crop's resistance against drought, freeze, diseases, and stalk leaning. The Company also expects to expand its branded retailer network to 35,000 by the end of 2012, which represents a 16.3% increase over the 2011 year-end number of 30,086.

Conference Call

The Company will host a conference call at 8:30 a.m. Eastern Time on March 15, 2012, to discuss its fourth quarter and full year 2011 results.

To participate in the live conference call, please dial the following number five to ten minutes prior to the scheduled conference call time: +1 (866) 519-4004. International callers should dial + 1 (718) 354-1231. The conference pass code is 612 74 094.

For those who are unable to participate in the live conference call, a replay will be available for fourteen days starting from 11:30 a.m. Eastern Time on March 15 to 23:59 Eastern Time on March 29. To access the replay, please dial +1 (866) 214-5335. International callers should dial +1 (718) 354-1232. The replay pass code is 612 74 094. A webcast recording of the conference call will be accessible through Yongye's website at www.yongyeintl.com.

Use of Non-GAAP Financial Measures

GAAP results for the three months ended December 31, 2011 and full year 2011 include non-cash items related to share-based compensation for management and independent directors, the amortization of the acquired Hebei customer list, and a change in the fair value of derivative liabilities. To supplement the Company's condensed consolidated financial statements presented on a U.S. GAAP basis, the Company has provided adjusted financial information excluding the impact of these items in this release. Such adjustment is a departure of U.S. GAAP; however, the Company's management believes that these adjusted measures provide investors with a better understanding of how the results relate to the Company's historical performance. These adjusted measures should not be considered an alternative to net income, or any other measure of financial performance or liquidity presented in accordance with U.S. GAAP.  These measures are not necessarily comparable to a similarly titled measure of another company. A reconciliation of the adjustments to U.S. GAAP results appears in the table accompanying this press release. This additional adjusted information is not meant to be considered in isolation or as a substitute for U.S. GAAP financials. The adjusted financial information that the Company provides also may differ from the adjusted information provided by other companies.

About Yongye International, Inc.

Yongye International, Inc. is a leading crop nutrient company headquartered in Beijing, with its production facilities located in Hohhot, Inner Mongolia, China. Yongye's principal product is a liquid crop nutrient, from which the Company derived substantially all of the sales in 2011. The Company also produces powder animal nutrient product which is mainly used for dairy cows. Both products are sold under the trade name "Shengmingsu," which means "life essential" in Chinese. The Company's patented formula utilizes fulvic acid as the primary compound base and is combined with various micro and macro nutrients that are essential for the health of the crops. The Company sells its products primarily to provincial level distributors, who sell to the end-users either directly or indirectly through county-level and village-level distributors. For more information, please visit the Company's website at www.yongyeintl.com.

Safe Harbor Statement

This press release contains certain statements that may include "forward-looking statements." All statements other than statements of historical fact included herein are "forward-looking statements." These forward-looking statements are often identified by the use of forward-looking terminology such as "believes," "expects" or similar expressions, involving known and unknown risks and uncertainties. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, they do involve assumptions, risks and uncertainties, and these expectations may prove to be incorrect. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including the risk factors discussed in the Company's periodic reports that are filed with the Securities and Exchange Commission and available on the SEC's website (http://www.sec.gov). All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these risk factors. Other than as required under the securities laws, the Company does not assume a duty to update these forward-looking statements.

Contacts

Yongye International, Inc.
Ms. Kelly Wang
Finance Director – Capital Markets
Phone: +86-10-8231-9608
E-mail: [email protected]

Ms. Wendy Xuan
Business Associate
Phone: +86-10-8232-8866 x 8827
E-mail: [email protected]

FTI Consulting

Mr. John Capodanno (U.S. Contact)
Phone: +1-212-850-5705
E-mail: [email protected]

Ms. Mingxia Li (China Contact)
Phone: +86-10-8591-1060
E-mail: [email protected]

(Financial Tables to Follow)

SOURCE Yongye International, Inc.

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