BEIJING, Sept. 18 /Xinhua-PRNewswire-FirstCall/ -- Yongye Biotechnology International, Inc. , a leading developer, producer and distributor of fulvic acid based nutrients for plants and animals in the People’s Republic of China, today released a letter to shareholders from the Company’s CEO and Chairman of the Board, Mr. Zishen Wu, summarizing some recent Company events and plans for the future.
Dear Shareholders:
I would like to update you on some recent developments and plans for the future at Yongye.
On September 11, 2008, a registration statement registering 18,967,646 shares of common stock was declared effective by the Securities and Exchange Commission. The registration statement included shares of common stock and shares of common stock underlying warrants that were sold to investors in two separate private placement transactions that were closed in April and September, respectively, which are now eligible for resale to the public. There were several institutional investors in the most recent round of financing, many of which had participated in the April financing. The length of the registration process was well within the 150-day time limit required in our April Securities Purchase Agreement, even though we delayed going effective until the September financing was closed. We expect that over time this will contribute to improved trading liquidity in our stock.
We plan to seek a listing on NASDAQ in the near future and feel that this is an important time to update investors on the company’s current plans and outlook.
We believe that Yongye has an exceptionally bright future because of very strong demand for our products, our scalable distribution model, the planned expansion of our manufacturing capacity, and pipeline of promising new products. We experienced exceptional growth in revenues and improved profitability during the first half of 2008, and we foresee that these growth trends will be sustained in the future. We expect to have more frequent communication with our shareholders, and hope to broaden the awareness of Yongye’s accomplishments in the investment community.
Unleashing the Productivity of China’s Agricultural Sector
While China’s population is increasing, the amount of arable land available for farming is decreasing. China’s farmland is currently being used at close to capacity levels to meet domestic demand. Increasing affluence and a rising concern about food quality and safety have led to greater demand for organic plant and animal nutrients. The need to use land efficiently has led to a need to improve productivity throughout the agricultural sector.
Yongye employs its proprietary technology to produce what we believe are the most effective fulvic acid-based plant and animal nutrient products available today. Our products deliver compelling returns by boosting productivity of farms and dairy cows, reducing the usage of other fertilizers and pesticides, improving the stability and quality of the soil. For dairies, we reduce the need for expensive antibiotics and health supplements. We have enjoyed an exceptionally strong demand from farmers once they try and experience the benefits of our products, and believe there is significant unmet demand for our products throughout China.
Scalable Distribution Model Drives Geographic Expansion
We believe that Yongye’s scalable distribution model, which employs a sales network of branded stores that are owned and operated by independent, local entrepreneurs but utilize a consistent Yongye branding and promotional model, is another key cornerstone of our success. This year our goal was to significantly grow our branded store count and distribution footprint, and I am very pleased to report that the number of branded stores grew from 200 at the end of 2007 to 775 at the end of June 2008. Our management team is now deploying our strength in marketing to assist each of these stores build acceptance of, and brand loyalty to, Yongye products so as to drive growth in same store sales going forward. In the future, we plan to work with government agencies to source locations for new stores and will also consider strategic acquisitions that will quickly allow us to expand in the provinces where we already have stores and enter new provinces.
Recent Private Placement to Fund Capacity Expansion
We are very pleased to have recently completed, in September, a successful private placement that resulted in an issuance and sale of an aggregate of 6,073,006 common shares, in which we received gross proceeds of $9.35 million. The proceeds from the private placement will be used by Yongye to restructure and consolidate product development, production and distribution in our Cooperative Joint Venture (CJV), Yongye Nongfeng Biotechnology CO. (“Yongye Nongfeng”), and expand production capability. Remaining proceeds will be used for working capital. As part of the restructuring we also plan to obtain financing in the form of a bank loan in the amount of $6 million.
Through the restructuring, our CJV Yongye Nongfeng will acquire all of the land rights, buildings, equipment and permits that currently belong to our outsourced manufacturing partner Inner Mongolia Yongye. This will enable Yongye Nongfeng to centralize and manage Company product development, manufacturing and distribution and result in a more tightly integrated business model with greater control over our product quality and intellectual property. The full restructuring process should be completed by approximately September 2009. We will begin by purchasing the production equipment used in the existing 2,000 Tonnes Per Annum (TPA) production facility, and which we expect to accomplish by the end of October 2008. In order to support our future growth, we are in the process of constructing a new 8,000 TPA production facility located at the same site as Inner Mongolia’s 2,000 TPA production facility. The new facility is now scheduled to be completed by the middle of October 2008 and to be fully operational in the first quarter of 2009, which will increase our potential production capacity a total of 400%.
Rich Pipeline of New Products
We are developing a number of new nutrient products that target specific plants and animals. We currently produce a universal plant nutrient product. The Company is developing specialized products that will target corn, la jiao peppers, wheat, rice, cucumbers, tomatoes, cotton, potatoes, sunflowers, grapes, tropical fruits and flowers. Our animal nutrient product is for dairy cows. Specialized nutrient products are being developed that will focus on hogs, poultry and sheep. We expect to increase our sales revenue by targeting specific plant needs and providing nutrients to more types of livestock and will roll these out according to our market strategy.
Outstanding Financial Results
Our strong product portfolio and growing distribution footprint resulted in outstanding financial performance in the first half of 2008. Net revenue grew by 232.0% to $27.0 million in the six months ended June 30, 2008, up from $8.1 million in the six months ended June 30, 2007. Gross profit was $14.6 million in the same period, representing a gross margin of 54.0%, as compared to gross profit of $3.8 million, or a gross margin of 46.5%, in the six months ended June 30, 2007. Net income was $7.7 million, or $0.54 per diluted share, compared to $3.4 million, or $0.29 per diluted share, in the six months ended June 30, 2007. As in the first six months of 2008, we expect the remaining two quarters to conform to plan for 2008 and lead towards our net income “make good” target of $10.3 million which we provided to investors as part of both of our private placement transactions.
Upcoming Visit to the United States
In the second half of September, Yongye senior management plans to take a trip to the U.S. to meet with investors in New York, San Francisco and Southern California. This trip is what we hope will be the first of many visits to give U.S. shareholders a chance to meet with management and learn more about Yongye. If you would like to learn more about opportunities to meet face to face with Yongye’s management, please do not hesitate to contact us directly at +86-8232-8866 Ext 8880, or our outside investor relations firm, CCG Investor Relations at +1-646-213-1915.
I hope this letter will give you a sense of our Yongye’s development and our strategic direction. We look forward to updating you on events through earnings conference calls, press releases, our filings with the Securities and Exchange Commission and visits to meet with investors and the financial community. I would like to thank our customers, shareholders, directors and employees for the Company’s present and future success.
About Yongye Biotechnology International, Inc.
Yongye Biotechnology International, Inc., headquartered in Beijing, is engaged in the development, distribution and sales of fulvic acid based nutrients for plants and animals. The Company’s patent pending processes and proprietary formulas allow it to create products which increase crop yields and improve the health of livestock. Its sole operating subsidiary, Yongye Nongfeng Biotechnology Company, Ltd., is located in Inner Mongolia. The Company sells its products through distributors and directly to farmers located in ten provinces throughout China.
Forward Looking Statements
Certain statements set forth in this press release constitute “Forward- looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate, or imply future results, performance or achievements, and may contain the words “estimate,” “project,” “intend,” “forecast,” “anticipate,” “plan,” “planning,” “expect,” “believe,” “will,” “will likely,” “should,” “could,” “would,” “may” or words or expressions of similar meaning. All such forward-looking statements involve risks and uncertainties, including, but not limited to: statements regarding the Company’s products; marketing and sales; patents and regulatory approvals; the effect of competition and proprietary rights of third parties; the need for and availability of additional financing and access to capital; the seeking of joint development, licensing or distribution and collaboration, marketing arrangements with other companies and other information detailed from time to time in our filings with the United States Securities and Exchange Commission. There can be no assurance that such forward-looking statements will prove to be accurate and Yongye undertakes no obligation to update any forward-looking statements or to announce revisions to any of the forward-looking statements.
CONTACT: Larry Gilmore, Officer & Vice President of Corporate Strategy at
+86-8232-8866 x8880 or larry.gilmore@gmail.com; or Mr. Crocker Coulson,
President of CCG Elite Investor Relations Inc. at +1-646-213-1915 or
crocker.coulson@ccgir.com
