Yongye International Announces Second Quarter 2011 Financial Results

- Company Raises Top and Bottom Line Guidance -

Aug 09, 2011, 13:13 ET from Yongye International, Inc.

BEIJING, Aug. 9, 2011 /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 quarter ended June 30, 2011.

Second Quarter 2011 Financial Highlights

  • Revenue in the second quarter of 2011 increased 73.0% to $154.7 million from $89.4 million for the same period of 2010
  • Gross profit increased 83.4% year-over-year to $91.8 million
  • Income from operations increased 72.5% to $51.5 million
  • Net income attributable to Yongye increased 63.1% to $39.5 million, or $0.77 per diluted share, compared to $24.2 million, or $0.54 per diluted share, in the same period last year  
  • 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 $40.5 million, or $0.82 per diluted share, compared to $24.1 million, or $0.54 per diluted share, in the same period last year*

Mr. Zishen Wu, Chairman and Chief Executive Officer of Yongye International, stated, "We are pleased to announce strong second quarter results, with revenue and net income increasing 73% and 63%, respectively. This quarter was an important one in our company's history; not only was it our thirteenth consecutive quarter of year-over-year revenue and adjusted net income growth since we became a public company in 2008, but the $50 million investment by MSPEA Agriculture, an affiliate of Morgan Stanley, highlights the maturation of our business, the strength of our brand, and success of our sales and distribution strategy. This investment will help us meet the growing demand for our Shengmingsu crop nutrient product."

Mr. Wu added, "Moving forward, we expect to see strong organic growth in our business driven by increased penetration into existing markets, geographic expansion into new markets, additional marketing and brand building efforts, expanded production capacity, and improved productivity in our operations. Importantly, we are also focused on providing more color and clarity around our business. For example, in the 10-Q for this quarter we provided more detailed information on metrics that we have received questions about in the past, including sales breakdown by province and a more detailed description of our sales channels. We hope this increased commitment to disclosure and transparency provides our investors with valuable information that will help them better understand our company's business. We will continue providing this level of detail going forward."

Second Quarter 2011 Results

Revenue for the three months ended June 30, 2011 was $154.7 million compared to $89.4 million for the same period in 2010, an increase of 73.0%. The significant increase in revenue was largely due to more effective channel management and continued retail network development in the Company's existing provincial markets like Jiangsu, Hebei, Hubei and Henan and expansion into new markets like Yunnan, Anhui, Jiangxi and Sichuan. Sales from those newly developed provincial markets were $40.1 million, or 25.9%, while existing markets contributed $114.6 million, or 74.1%. During the quarter, the number of branded retailers increased from 26,006 to 28,373. The number of branded retailers as of June 30, 2011 increased 52% compared to the end of June 30, 2010.

Gross profit was $91.8 million for the three months ended June 30, 2011, compared to $50.0 million for the three months ended June 30, 2010, an increase of 83.4%. The $41.8 million increase in gross profit was almost entirely due to higher gross profit from the Company's liquid crop nutrient product sales. Gross margin was 59.3% compared to 56.0% in the same period last year, mainly due to the fact that after the Company's Wuchuan facility became operational, Yongye started to use lignite coal as a key raw material, enabling the Company to bypass intermediaries from whom it 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 second quarter of 2011. Excluding the aforementioned non-cash expenses related to the amortization of the acquired Hebei customer list, second quarter 2011 adjusted gross profit was $92.5 million, or 59.8% of sales.*

Selling expenses were $29.2 million compared to $16.3 million in the same period last year, an increase of 78.4%. As a percentage of sales, selling expenses increased by 50 basis points to 18.8% from 18.3% of sales in the same period last year. The increase in selling expenses as a percentage of sales was mainly due to more marketing promotional activities in its existing and new geographic markets.

General and administrative ("G&A") expenses were $5.6 million compared to $1.6 million in the same period last year. As a percentage of sales, G&A expenses increased to 3.6% from 1.8% of sales in the same period last year, which was primarily due to the increase of employee compensation, including restricted stock issuance under management equity plan and training expenses.

Research and development ("R&D") expenses were $5.6 million compared to $2.2 million in the same period last year. The increase in R&D expenses mainly consist of new product development expenses as well as field test expenses for new crops and newly developed geographic markets.  

Operating income was $51.5 million, or 33.3% of sales, compared to $29.8 million, or 33.4% of sales, in the same period last year. Excluding non-cash expenses related to share-based compensation for management and independent directors and the amortization of the acquired Hebei customer list, second quarter 2011 adjusted operating income was $52.5 million, or 34.0% of sales.*

Net income attributable to Yongye was $39.5 million, or $0.77 per diluted share, compared to a net income of $24.2 million, or $0.54 per diluted share, in the same period last year. The Company recorded a non-cash expense related to a change in fair value of derivative liabilities of $83,435 in the second 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 income attributable to Yongye for the second quarter of 2011 was $40.5 million, or $0.82 per diluted share, compared to $24.1 million, or $0.54 per diluted share in the same period last year.*

(*) 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 the amortization of the acquired Hebei customer list, share-based compensation, and a change in the fair value of derivative liabilities.

Six Month Financial Results

Revenue for the six months ended June 30, 2011 increased 79.2% to $204.9 million from $114.3 million. During the same time period, gross profit was $119.1 million, compared to $63.9 million in the first six months of 2010. Operating income in the first six months of 2011 was $62.8 million, compared to $35.5 million in the first six months of 2010. Net income attributable to Yongye for the first six months of 2011 was $47.9 million, compared to $28.6 million in the prior year period. In the first six months 2011, net income per diluted share was approximately $0.94, as compared to $0.64 diluted earnings per share for the same period of 2010.

Financial Condition

As of June 30, 2011, the Company had $74.9 million in cash and restricted cash, compared to $42.0 million as of December 31, 2010. Working capital was $232.5 million, compared to $124.3 million at the end of 2010. The Company has $15.5 million in short-term bank loan and $1.5 million in long-term debt as of June 30, 2011. Stockholders' equity totaled $286.6 million as of June 30, 2011, compared to $225.1 million at the end of 2010. Cash flow used by operating activities was $27.8 million and $9.2 million for the six months ended June 30, 2011 and 2010, respectively. The increase was primarily driven by higher accounts receivables, and higher deposits to suppliers, but was partially offset by higher accounts payable and accrued expenses.

Recent Developments

  • 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 US$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 2010, 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. The Company entered into a Securities Purchase Agreement with MSPEA and the Company's largest shareholder, Full Alliance International Limited, pursuant to which MSPEA purchased 5,681,818 shares of the Company's convertible preferred stock for an aggregate purchase price of $50 million on June 9, 2011.
  • On June 8-9, 2011, the Company hosted an analyst/investor event in Beijing and Hohhot, Inner Mongolia.
  • In May 2011, the marketing team and Nan Xu, General Manager of the National Sales Center of Yongye Nongfeng received the "Jin Ding Award" at the 8th China Marketing Forum, a top honor in the marketing field in China.

Business Outlook

The Company also announced that it is increasing both top and bottom line guidance for 2011. Previous guidance included revenues of $315 million to $325 million and adjusted net income of $80 million to $82 million. Revised guidance now includes revenue of $335 million to $345 million and net income, 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 of $85 million to $87 million. The Company also expects to expand its branded retailer network to at least 30,000 by the end of 2011, which represents a 24.8% increase over the 2010 year-end number of 24,036.

Conference Call

The Company will host a conference call at 8:30 a.m. Eastern Time on August 9, 2011, to discuss its second quarter 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 900 00 337.

For those who are unable to participate on the live conference call, a replay will be available for fourteen days starting from 11:30 a.m. Eastern Time on August 9 to 23:59 Eastern Time on August 23. To access the replay, please dial +1 (866) 214-5335. International callers should dial +1 (718) 354-1231. The replay pass code is 900 00 337. 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 June 30, 2011 include non-cash items related to the amortization of the acquired Hebei customer list, management share-based compensation expenses, and the change in fair value of derivative liabilities. To supplement the Company's condensed consolidated financial statements presented on a GAAP basis, the Company has provided adjusted financial information excluding the impact of these items in this release. It 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 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 GAAP financials. The adjusted financial information that the Company provides also may differ from the adjusted information provided by other companies.

About Yongye International

Yongye International 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 which accounted for 99.7% of total sales for the three months ended June 30, 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

Ms. Kelly Wang

Finance Director Capital Markets

Phone: +86-10-8231-9608

E-mail: ir@yongyeintl.com

Ms. Wendy Xuan

Business Associate

Phone: +86-10-8232-8866 x 8827

E-mail: ir@yongyeintl.com

Financial Dynamics

Mr. John Capodanno (U.S. Contact)

Phone: +1-212-850-5705

E-mail: john.capodanno@fd.com

Ms. Mingxia Li (China Contact)

Phone: +86-10-8591-1060

E-mail: mingxia.li@fd.com

- Financial Tables Follow -

YONGYE INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

For the Three Months Ended

June 30, 2011

June 30, 2010

 

 

Sales

$

154,704,865

$

89,414,388

Cost of sales

 

62,939,174

 

39,378,346

Gross profit

91,765,691

50,036,042

Selling expenses

29,152,923

16,343,330

Research and development expenses

5,555,634

2,238,331

General and administrative expenses

 

5,586,019

 

1,614,692

Income from operations

51,471,115

29,839,689

Other income/(expenses)

Interest expense

(291,751)

(21,614)

Interest income

16,860

14,343

Subsidy income

655,071

286,074

Other income/(expense), net

26,560

821

Change in fair value of derivative liabilities

 

83,435

 

156,936

Total other income/(expenses), net

 

490,175

 

436,560

Earnings before income tax expense

51,961,290

30,276,249

Income tax expense

 

10,127,255

 

4,738,834

Net income

41,834,035

25,537,415

Less: Net income attributable to the

2,297,271

1,291,714

non-controlling interest

Net income attributable to Yongye International, Inc.

$

39,536,764

$

24,245,701

Earnings per share:

Basic earnings per common stock

$

0.78

$

0.54

Diluted earnings per common stock

$

0.77

$

0.54

Weighted average shares used in computation:

Basic earnings per common stock

49,276,070

44,578,011

Diluted earnings per common stock

49,378,396

44,696,725

YONGYE INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

June 30, 2011

December 31, 2010

Current assets

 

 

Cash

$

74,833,256

$

41,913,469

Restricted cash

40,000

40,000

Accounts receivable, net of allowance for doubtful accounts

142,506,734

26,110,813

Inventories

43,786,483

65,878,047

Deposits to suppliers

52,794,362

10,906,295

Prepaid expenses

1,455,946

733,429

Other receivables

774,179

760,377

Deferred tax assets, net

 

-

 

158,675

Total Current Assets

316,190,960

146,501,105

Property, plant and equipment, net

22,049,598

21,547,152

Intangible asset, net

22,719,190

23,598,739

Land use right, net

4,268,223

4,218,006

Prepayment for mining project

34,934,633

34,151,063

Other assets

10,459,282

7,325,049

Goodwill

 

10,520,901

 

10,284,922

Total Assets

$

421,142,787

$

247,626,036

Current liabilities

Long-term loans and payables - current portion

$

996,400

$

457,880

Short-term bank loan

15,471,494

-

Accounts payable

19,018,035

6,127,606

Income tax payable

14,578,657

6,137,119

Advance from customers

679,552

60,841

Accrued expenses

29,586,579

3,024,235

Other payables

2,691,523

5,310,517

Derivative liabilities - fair value of warrants

 

622,681

 

1,036,268

Total Current Liabilities

83,644,921

22,154,466

Long-term loans and payables

1,500,865

383,285

Total Liabilities

 

85,145,786

 

22,537,751

Series A convertible redeemable preferred shares: par value $.001; 7,969,044 shares authorized; 5,681,818 shares issued and outstanding as of June 30, 2011

49,399,990

-

Equity

Common stock: par value $.001; 75,000,000 shares authorized; 48,187,044 shares issued and outstanding at June 30, 2011 and March 31, 2011

49,371

48,187

Additional paid-in capital

149,549,255

144,599,839

Retained earnings

111,846,563

63,943,371

Accumulated other comprehensive income

 

12,044,161

 

6,623,806

Total equity attributable to Yongye International, Inc.

273,489,350

215,215,203

Non-controlling interest

 

13,107,661

 

9,873,082

Total Equity

 

286,597,011

 

225,088,285

Commitments

Total Liabilities, Series A Convertible Redeemable Preferred Shares and Equity

$

421,142,787

$

247,626,036

YONGYE INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Six Months Ended

30-June-11

30-June-10

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

Net income

$

50,885,969

$

30,166,157

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

3,261,186

937,752

Change in fair value of derivative liabilities

(413,587)

(169,470)

Stock compensation expense

4,950,600

-

Deferred tax assets benefit

162,234

-

Changes in operating assets and liabilities:

Accounts receivable

(115,140,649)

(47,954,830)

Inventories

23,582,770

771,354

Deposit to suppliers

(41,373,219)

(4,111,996)

Prepaid expenses

(693,128)

(342,900)

Other receivables

(5,805)

117,326

Other assets

(1,995,399)

(5,627,195)

Accounts payable- third parties

12,662,550

1,818,461

Accounts payable- related parties

-

(880,505)

Income tax payable

8,251,950

4,615,935

Advance from customers

606,546

947,831

Accrued expenses

26,366,405

10,356,848

Other payables

 

1,108,043

 

165,247

Net Cash Provided by Operating Activities

(27,783,534)

(9,189,985)

CASH FLOWS FROM INVESTING ACTIVITIES

Payment for intangible asset

(3,000,000)

-

Prepayment for mining project

-

(19,309,188)

Proceeds from sale of property, plant and equipment

-

92,629

Purchase of property, plant and equipment

 

(1,608,789)

 

(2,791,242)

Purchase of property, plant and equipment- related party

-

(1,663,769)

Net Cash Used in Investing Activities

(4,608,789)

(23,671,570)

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from short-term bank loans

15,384,852

-

Repayment of long-term loans and payables            

(351,242)

(334,675)

Repayment of short term loans

-

(2,925,675)

Proceeds from preferred stock, net of issuance cost of $600,010

49,399,990

-

Proceeds from common stock issued and warrants exercised                                                  

-

8,634,397

Net Cash Provided by Financing Activities

64,433,600

5,374,047

EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH

878,510

134,841

NET INCREASE / (DECREASE) IN CASH

32,919,787

(27,352,667)

Cash and cash equivalent at beginning of period

41,913,469

65,518,181

Cash and cash equivalent at end of period

74,833,256

38,165,514

YONGYE INTERNATIONAL, INC. AND SUBSIDIARIES

RECONCILIATION OF NON-GAAP FINANCIAL DATA

Gross Profit

Three Months Ended June 30,

2011

2010

GAAP amount per consolidated statement of income

$91,765,691

$50,036,042

Amortization of the acquired Hebei customer list

$703,727

$0

Adjusted Amount

$92,469,418

$50,036,042

Income from Operations

Three Months Ended June 30,

2011

2010

GAAP amount per consolidated statement of income

$51,471,115

$29,839,689

Amortization of the acquired Hebei customer list

$703,727

$0

Non-cash management compensation expense

$370,866

$0

Adjusted Amount

$52,545,708

$29,839,689

Net Income (attributable to Yongye)

Three Months Ended June 30,

2011

2010

GAAP amount per consolidated statement of income

$39,536,764

$24,245,701

Amortization of the acquired Hebei customer list

$703,727

$0

Non-cash management compensation expense

$370,866

$0

Change in fair value of derivative liabilities

($83,435)

($156,936)

Adjusted Amount

$40,527,922

$24,088,765

Weighted average shares -- diluted

49,378,396

44,696,725

Adjusted diluted earnings per share

$0.82

$0.54

SOURCE Yongye International, Inc.



RELATED LINKS

http://www.yongyeintl.com