Yongye International Announces First Quarter 2011 Results

BEIJING, May 9, 2011 /PRNewswire-Asia-FirstCall/ -- Yongye International, Inc. (NASDAQ: YONG), ("Yongye" or the "Company") a leading developer, manufacturer, and distributor of Shengmingsu brand plant and animal nutrient products in the People's Republic of China ("PRC"), today announced its financial results for the quarter ended March 31, 2011.

First Quarter 2010 Highlights

• Revenue increased 101.4% to $50.2 million from the first quarter of 2010
• Gross profit increased 97.0% year-over-year to $27.3 million
• Income from operations increased 101.0% to $11.3 million
• Net income attributable to Yongye increased 91.4% to $8.4 million, or $0.16 per diluted share, compared to $4.4 million, or $0.10 per diluted share, in the first quarter 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 $13.3 million, or $0.27 per diluted share, compared to $4.4 million, or $0.10 per diluted share, in the same period last year*
• Cash flow from operations increased to $6.6 million year-over-year from $0.5 million in the first quarter of 2010
• Formed official partnership with Stanford University and China Agricultural University to address rural poverty, education, nutrition and health issues in China and provide technical support to Chinese farmers.

"Due to our expanded distribution network, deeper penetration in our existing market and the significantly enhanced market recognition of our Shengmingsu product, Yongye has achieved another successful quarter with strong top line, bottom line, and operating cash flow growth," stated Mr. Zishen Wu, Chairman and Chief Executive Officer of Yongye International. "During the first quarter of 2011, which is normally a seasonally slow quarter, we continued the expansion of our branded store network to 26,006 stores covering 30 provinces in China. In addition, with the launch of the new Shengmingsu production line, as well as our improved working capital management, we were able to achieve significant growth in our operating cash flow."

First Quarter 2011 Results

Revenue for the three months ended March 31, 2011 was $50.2 million compared to $24.9 million for the same period in 2010, an increase of 101.4%. The significant increase in revenue was mainly due to higher demand throughout the Company's market area and the rapid expansion of the Company's distribution network. As of March 31, 2011, Yongye had 26,006 independently-owned branded stores in its network, compared to 24,036 stores at the end of 2010 and 9,110 stores at the end of 2009.

Gross profit was $27.3 million for the three months ended March 31, 2011, compared to $13.9 million for the three months ended March 31, 2010, an increase of 97.0%.  Gross margin was 54.4% compared to 55.6% in the same period last year.  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 first quarter of 2011.  Excluding the aforementioned non-cash expenses related to the amortization of the acquired Hebei customer list, first quarter 2011 adjusted gross profit was $28.0 million, or 55.7% of sales.*      

Selling expenses were $7.7 million compared to $6.3 million in the same period last year, an increase of 22.2%.  As a percentage of sales, selling expenses decreased by 990 basis points to 15.3% from 25.2% of sales in the same period last year.  The decline in selling expense as a percentage of sales was mainly due to the Company's revenues growing faster than its marketing, advertising and promotional expenses.  

General & administrative ("G&A") expenses were $7.3 million compared to $1.9 million in the same period last year.  As a percentage of sales, G&A expenses increased by 7.1% to 14.5% from 7.4% of sales in the same period last year, which was primarily due to $4.6 million in non-cash expenses related to share-based compensation as a result of the restricted shares granted to management and independent directors in October 2010 in accordance with Yongye's Omnibus Securities and Incentive Plan as approved in Yongye's 2010 Annual Meeting of Shareholders.

Research and development ("R&D") expenses were $1.1 million compared to $0.1 million in the same period last year.  The increase in R&D expense is mainly the result of conducting additional field tests for the Company's products.

Operating income was $11.3 million, or 22.5% of sales, compared to $5.6 million, or 22.5% 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, first quarter 2011 adjusted operating income was $16.6 million, or 33.0% of sales.*  

Net income attributable to Yongye was $8.4 million, or $0.16 per diluted share, compared to a net income of $4.4 million, or $0.10 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 $330,152 in the first 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 first quarter of 2011 was $13.3 million, or $0.27 per diluted share, compared to $4.4 million, or $0.10 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.  

Financial Condition

As of March 31, 2011, the Company had $44.6 million in cash, compared to $42.0 million as of December 31, 2010. Working capital was $139.7 million, compared to $124.3 million at the end of 2010. The Company had only $0.4 million in long-term debt as of March 31, 2011.  Stockholders' equity totaled $240.5 million as of March 31, 2011, compared to $225.1 million at the end of 2010. Cash flow from operations increased to $6.6 million period-over-period from $0.5 million in the first quarter of 2010.

Recent Developments

• In April 2011, Yongye Nongfeng obtained two short-term bank loans of RMB52.5 million or approximately $8.0 million and of RMB47.5 million or approximately $7.2 million from China Everbright Bank that bear fixed annual interest rates of 7.787% and 8.203%, respectively. These two short-term bank loans are personally guaranteed by the Company's Chairman and Chief Executive Officer and are due on April 1, 2012, and April 18, 2012, respectively.
• In March 2011, Yongye's main operating affiliate, Yongye Nongfeng, received a High-Tech Enterprise Certificate by the Inner Mongolia Autonomous Region government and is therefore qualified to receive certain favorable government policies, including a preferential corporate income tax rate of 15% for three years, starting from 2010.
• In March 2011, Yongye entered into an official partnership with China Agricultural University to provide technical support to Chinese farmers.
• On March 15, 2011, Yongye's operating affiliate, Yongye Nongfeng, received the 3rd annual "China Corporate Integrity Award."
• In March 2011, the Company announced that it partnered with Stanford University to jointly develop innovative programs to help address rural poverty, education, nutrition and health issues in China.
• In January 2011, CCTV honored Mr. Baosheng Tong, the Company's Chief Scientist, naming him the "2010 Person of the Year for San Nong."

Business Outlook

The Company continues to expect to achieve 2011 revenues of between $315 million and $325 million, representing an increase of 47.1% and 51.8% over 2010's revenue of $214.1 million. The Company expects 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, of between $80 million and $82 million, representing an increase of between 47.9% and 51.6% over 2010 adjusted net income attributable to Yongye of $54.1 million. The Company expects to expand its independently-owned branded store network to at least 30,000 by the end of 2011, which represents a 24.8% increase over the 2010 year-end figure of 24,036.

Mr. Wu added, "Our Shengmingsu plant nutrient product continues to help improve the productivity of Chinese farmers.  After several years of rapid expansion, Yongye has become a leading nationwide agricultural nutrient product supplier in China. Our increased consumer recognition in the agricultural community in China is an important contributor to our business growth. Our new state-of-the-art production facility, which began normal operations at the end of 2010, will help us fulfill the growing demand for our products. We anticipate we will secure the final government approval in order to complete our lignite coal resource project acquisition by the end of 2011. We look forward to achieving another successful year in 2011 by delivering value to both our customers and shareholders."

Conference Call

The Company will host a conference call at 09:00 a.m. Eastern Time on May 10, 2011, to discuss its first 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: (866) 759-2078. International callers should dial +1 (706) 643-0585. The conference pass code is 641 541 47.

For those who are unable to participate on the live conference call, a replay will be available for fourteen days. To access the replay, please dial (800) 642-1687. International callers should dial +1 (706) 645-9291. The replay pass code is 641 541 47.

Use of Non-GAAP Financial Measures

GAAP results for the three months ended March 31, 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 agricultural nutrient company headquartered in Beijing, with its production facilities located in Hohhot, Inner Mongolia, China. Yongye produces and markets two lines of organic nutrient products: a liquid nutrient product which is sprayed on plants and a powder nutrient product which is added to animal feed. Both products are sold under the brand name "Shengmingsu," which means "life essential" in Chinese. The Company's patented technologies and formulas allow it to create products that increase crop yields and improve the health of livestock. The Company sells its products primarily to provincial or regional level distributors, who then channel those products to a carefully selected network of over 26,000 independently owned, Yongye branded stores or directly to rural farmers and government farms in China. For more information, please visit the Company's website at http://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.

– Financial Tables Follow –

SOURCE Yongye International, Inc.

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