1. What is Yongye’s main business?
Yongye International Inc. (“Yongye” or the “Company”) 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 for full year ended December 31, 2011. The Company also produces a 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 crops. Yongye’s plant products’ main function is improving crop yields, while the Company’s products for animals improve the overall health of livestock. The Company's products address the real need for greater efficiency in China's agricultural sector. 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.
2. When were Yongye International Inc. and Yongye Nongfeng Biotechnology Co., Ltd (CJV) founded?
Yongye International Inc. was founded in December 2006 and Yongye Nongfeng Biotechnology Co., Ltd was founded in January 2008 as a Cooperative Joint Venture company in China.
3. Can you describe the relationship among the various Yongye entities?
Yongye Group is the collective name for all companies founded by Mr. Zishen Wu, including “Inner Mongolia Yongye or Yongye Biotechnology”, “Yongye Nongfeng” and “Yongye Fumin”, etc. Yongye International is a Nevada company listed in NASDAQ, which owns 95% of Yongye Nongfeng via two 100% owned offshore legal entities, while the remaining 5% is owned by Inner Mongolia Yongye. Yongye Fumin is 100% owned by Yongye Nongfeng. Yongye Nongfeng and Yongye Fumin are Yongye International’s only operating affiliates in China and own the Shengmingsu business. Other Yongye Group companies engage in businesses including Chinese herb, hotel, tourism and etc. All material related party transactions between Yongye International/Yongye Nongfeng/Yongye Fumin and other Yongye Group businesses are disclosed in Yongye International’s filing to SEC. In various public events, all Yongye Group companies use the name of Yongye Group, which is common Chinese business practice. Yongye Group has a Chinese website www.china-yongye.com listing all Yongye Group businesses, while Yongye International has a separate bilingual website for Shengmingsu business primarily serving Yongye International overseas investors.
4. What is Shengmingsu and how was it developed?
Our former Chief Scientist, Professor Gao Jing, led the development of Shengmingsu in 2001 with first sales in 2005. Yongye's Shengmingsu plant products are primarily developed based on a patent-protected formulation of fulvic acid, micronutrients and other NPK (nitrogen, phosphorus and potassium) elements.
5. How could Yongye develop so many branded retailers so fast?
Yongye doesn’t own any of the branded retailers. Those retailers typically are very small-size agricultural stores in rural villages/towns and are normally recruited and managed by Yongye’s county level distributors. Our provincial level distributors play a key role helping developing and managing our county level distributor network in their markets. Our distributors all have dedicated team of sales and channel management staff for our business and some use “Yongye Sales Center” as their name when promoting our products in their geographic markets, although none are related parties to Yongye. As of the end of 2011, Yongye has approximately 25 provincial level distributors, 810 county level distributors and 30,086 branded retailers.
6. Please explain why Yongye has various regional marketing centers?
Yongye’s provincial level distributors play a key role in developing and managing our county level distributor network in their markets. The Company’s county level distributors help it recruit and manage branded retailers. Yongye does not own any of the branded retailers that sell its Shengmingsu products. The Company’s key distributors all have dedicated teams of sales and channel management staff for Yongye’s products, and some, including Shenzhen Jiuzhoufangyuan and Shijiazhuang Jichuang, use “Yongye Sales/Marketing Center” as their name when promoting Yongye’s products in their geographic markets. As of the end of 2011, Yongye has approximately 25 provincial level distributors, 810 county level distributors and 30,086 branded retailers.
7. What is the current status of accounts receivable?
As announced in a press release on April 3, 2012, during the first quarter of 2012 the Company collected $140 million of $154 million net outstanding accounts receivable at the end of 2011. None of Yongye distributors are in bankruptcy nor do they have any dispute on their accounts payable. The Company is committed to transparency and will provide public updates on key aspects of the business as they develop.
Yongye works closely with its distributors to improve collection speed for accounts receivable. Recently, due to the tightening of some local credit markets, the Company’s distributors are using the Company’s full six month credit term to make deposits for its products which has led to a small percentage of accounts overdue at year end.
8. What is Yongye doing about short attacks and accusations of fraud?
Yongye monitors all allegations closely with its counsel and management is aware of statements set forth on various forums and message boards. The statements posted on these websites appear to be no more than recycled allegations made by others without any basis in fact or concern for responsible analysis. Yongye has previously, and on several occasions in public filings and on publicly accessible conference calls, addressed these baseless claims and confronted all of the vague innuendo set forth in these repetitive “reports.” Yongye is committed to transparency and best practices regarding all matters pertaining to corporate governance.
9. Where is the Company’s cash held?
The majority of the Company’s cash is held in RMB denominated Company bank accounts in China. The Company does not use, and does not expect to use in the future, any derivative financial instruments to hedge its interest risk exposure.
10. Morgan Stanley Private Equity Asia’s terms and conditions appear to be very aggressive. How does Yongye meet those terms and continue to expand?
Yongye’s 2011 performance and guidance for 2012 satisfy the cumulative net profit target for the $8.80 conversion price of the Morgan Stanley Private Equity Asia investment. If Yongye’s actual performance is higher or lower than the target, the conversion price will be adjusted accordingly. Please refer to Yongye’s agreement with Morgan Stanley Private Equity Asia for detailed conversion mechanism, which is included in Yongye’s filing to the SEC.
11. Why is there a slowdown in expected growth for 2012, relative to 2011?
For the past several years, Yongye has been growing extremely fast. As a result, the Company believes that it is important to focus increased attention and spend more resources on infrastructure development and cash flow and distributor management. Yongye believes that 30% growth for 2012 is appropriate given those strategic objectives. The Company believes this strategy will enable it to create additional foundational strength to support further growth over the long term.
12. Will Yongye be issuing a dividend to its shareholders?
Yongye understands that many shareholders are of the belief that the Company should issue a dividend to return cash to shareholders. It is a topic that the management team has had extensive internal discussions on. However, at this point in time, the Company continues to see tremendous growth opportunities and remains focused on supporting the growth of the business. As a result, Yongye has no plans to issue a dividend at this time and will continue to reinvest excess cash into the business.
13. Has Yongye considered taking the company private?
Yongye explores all opportunities and offers that the Company receives and makes decisions in the best interest of the business and the Company’s shareholders. At this point in time, Yongye has no information to disclose regarding taking the Company private.
14. Is Yongye’s independent distributor, Shenzhen Jiuzhoufangyuan a related party to the Company and run by a Yongye employee?
Shenzhen Jiuzhoufangyuan is an independently run business and in no way related to Yongye beyond acting as a distributor of the Company’s Shengmingsu products, and Mr. Shen Dan Hua is not an employee of Yongye. While most of the Company’s provincial distributors exclusively carry agricultural products, China's distribution industry today is generally less specialized than in developed economies, and some of the Company’s distributors, including Shenzhen Jiuzhoufangyuan, sell (or have sold) non-agricultural products in addition to Yongye products. As with all of the Company’s distributors in China, Yongye selected to work with Shenzhen Jiuzhoufangyuan based on their extensive experience coupled with their strong desire to work with Yongye's attractive product portfolio.
15. Is it true that an independent source shows that Yongye is vastly overstating sales to one of its main distributors from Inner Mongolia?
As previously reported, sales to Bameng Jingshirong, one of our Inner Mongolia distributors, were US$19 million in 2010. The list of the 100 largest private enterprises in Inner Mongolia, linked here
, is referenced from a news story posted on the official website of the Inner Mongolia Federation of Industry and Commerce (NMGFIC). The compiled list was based on voluntary submissions from private companies in the autonomous region. The list in no way constitutes an official or certified list of the 100 largest private companies in Inner Mongolia by revenue. The notation attached to the list itself also notes that companies must voluntarily opt into the list and that the list does not include a completely accurate record of the 100 largest private companies in Inner Mongolia.
16. What third party studies exist to support the efficacy of Yongye’s Shengmingsu product?
The Inner Mongolia Autonomous Region Scientific and Technology Bureau (IMARSTB) has conducted tests on both Yongye’s plant and animal nutrient products. There have also been many third party tests conducted on Shengmingsu as Yongye’s sales territories expand to more geographic areas in China. Some of these test reports have been translated into English and are posted on the Company’s website.
In addition, there are various international academic research studies being conducted to examine the impact of humic and fulvic acid on agriculture output. Some of these research papers are also posted on Yongye’s website. These reports can be found in the “Research & Development” section of Yongye’s website linked here.
17. When does Yongye usually release its quarterly earnings results?
Yongye's quarterly earnings reports follow SEC regulations on timing. Per SEC definition Yongye is an accelerated filer, which requires it to file earnings results within 40 days after quarter end and 75 days after year end. All earnings releases are posted on the company’s website and sent through normal media outlets.
18. What are Yongye's fiscal year and corresponding quarter-end dates?
Yongye operates on a fiscal year that runs from January 1 to December 31. Quarter-ends are: March 31 (Q1), June 30 (Q2), September 30 (Q3) and December 31 (Q4).
19. Where is Yongye’s investor presentation?
Yongye’s latest investor presentation is available for viewing and download on the investor relations section of the Company website linked here
20. How can I get on an e-mail list to receive all press releases?
To receive all press releases and other financial reports via e-mail or to automatically receive e-mail alerts for the information categories that interest you, please click on E-mail Alerts and submit your E-mail
21. Can you share information regarding Yongye’s industry and competition?
Yongye's crop nutrient product competes in a relatively fragmented market in China against other smaller local products. As of July 2011, there were over 800 registered humic and fulvic acid products according to the website of Ministry of Agriculture in China. Yongye's Shengmingsu branded products are the leading nationally distributed and promoted brand in China with over 29,000 branded retailers across China, the largest distribution network of any crop nutrient product company in China.
22. Was Yongye required by the SEC to provide more detail on its customers? Is Yongye in compliance with all SEC report rules currently?
Yongye is compliant with all SEC reporting rules and best practices. While Yongye's original customer disclosure complied with the SEC’s requirements, the company has publicly provided additional details on its customer lists (notwithstanding legitimate commercial concerns) and has expanded its customer disclosure in its periodic quarterly filings in the interests of investor transparency.
23. Mineral Resource Project - Has Yongye received all government permits to develop its mineral resource project in Wuchuan?
In August 2011, Yongye Fumin, a wholly-owned subsidiary of Yongye Nongfeng, the Company's main operating entity in China, obtained government approval for mineral resource exploration for its designated project site in Wuchuan, Inner Mongolia, China. Yongye entered into an agreement to purchase this mineral resource project in March 2010 to secure the key raw material used in the production of Yongye's Shengmingsu crop and animal nutrient products, as part of its long-term strategy for vertical integration and securing key raw material supply.
This Exploration 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. The project site in Wuchuan is located near Yongye's primary production facility which manufactures the majority of Yongye's Shengmingsu products. Once exploration is complete, Yongye can apply to the government for development permits which will allow it to begin production of the site. The remaining approval process normally takes 2 to 3 years.
24. Does Morgan Stanley have a “put right” due to Yongye not yet obtaining all the necessary mining right approvals?
While Yongye is required to use its commercially reasonable efforts to obtain the mining right and environmental evaluation approval by Dec 31, 2011, this is a covenant item, and not obtaining them will not automatically trigger MSPEA to pull out its investment so long as such efforts were made. Yongye believes that it is in full compliance with this requirement. More details of the investment agreement between MSPEA and Yongye can be found on page four of the 8k filing linked here
25. Wuchuan Facility - What are Yongye’s current production development plans?
Yongye’s Wuchuan production facility is the company’s primary production facility and the site of future capacity expansion. The first phase of development of this facility was completed in 2010 and cost approximately US$15 million. Yongye continues to develop this facility in a phased approach, which will continue in 2012 with the implementation of additional production and product line capacity as announced during the company’s 3Q earnings call on Nov. 9, 2011. This capacity expansion, as announced, will cost approximately US$8 million and expand Yongye’s total capacity to an estimated 70,000 tons per annum.
26. Will Yongye be launching any new products in 2012?
Yongye launched two new products in March 2012. These two products, Zhongbaosheng (种宝生) and Qianggenbao (强根宝), are complementary to Yongye’s existing Shengmingsu product and are primarily targeted at enhancing the seedling and nutrition absorption of the roots of plants.
27. Considering the market price of humic acid and that there is only 50 grams of humic acid per liter of Shengmingsu, why is the humic acid percentage cost of Shengmingsu so high according to the content data on the Shengmingsu product description?
Shengmingsu is a high-end crop nutrient. Yongye utilizes high-quality raw materials and a proprietary manufacturing processes to ensure product efficacy. Price quotes of humic acid from small online vendors and pricing ratio of 50g/liter, significantly underestimate the actual cost of humic acid per ton of Shengmingsu for several reasons, a) Yongye only uses top-quality humic acid for the Company’s manufacturing, which incurs higher costs; b) Yongye uses a significant amount of humic acid to extract a small amount of high-grade fulvic acid through proprietary processes; c) the 50g/liter ratio actually applies to Yongye’s high-grade fulvic acid (water soluble humic acid) content for the Shengmingsu product, instead of humic acid; and d) Shengmingsu’s minimum fulvic acid content requirement is 50g/liter, whereas the actual content from our manufacturing process is in almost all cases higher than the minimum amount.
28. Is the Morgan Stanley investment really unfavorable for common shareholders?
The terms of MSPEA’s investment in Yongye are fully disclosed in Yongye’s public SEC filings, and management and the board of directors believe that this transaction offered significant benefits to the Company and its common stockholders and its announcement resulted in an immediate and significant appreciation in its stock price. Yongye also notes that following the closing, MSPEA purchased approximately 2 million additional shares of Yongye common stock in the open market.
29. How many of the Company's shares are outstanding?
There are 50.5M common shares outstanding as of November 30, 2011.
30. What are Yongye’s ticker symbol, exchange, and CUSIP?
The Company’s common stock trades on the Nasdaq Global Select Market under ticker symbol YONG. The CUSIP is 98607B106.
31. Who is Yongye's outside investor relations firm?
FTI Consulting is Yongye’s outside investor relations firm. For any investor relations inquiries please email them at email@example.com.
32. Who are Yongye’s audit and legal advisors?
Yongye’s auditor is:
8th Floor, Prince's Building
10 Chater Road
Central, Hong Kong
Yongye’s legal counsel is:
Loeb & Loeb, LLP
Simpson Thacher & Bartlett LLP
ICBC Tower, 35/F
3 Garden Road
Central Hong Kong
345 Park Avenue
New York, NY 10154
Phone: +1. 212.407.4000
33. Who is Yongye’s transfer agent and registrar?
Yongye’s transfer agency and registrar is:
Empire Stock Transfer
2470 Saint Rose Parkway
Suite 304, Henderson, Nevada 89074
Phone: +1.702. 818.5898
Fax: +1.702. 974.1444