TORONTO, May 11 /PRNewswire-FirstCall/ -- Sino-Forest Corporation ("Sino-Forest") (TSX:TRE) announced its financial results today for the three months ended March 31, 2009. All amounts in this release are expressed in U.S. dollars unless otherwise indicated.
Financial Highlights - Revenue increased 31% to $177 million - EBITDA was up 54% to $115 million - Net income rose 58% to $23 million - Diluted EPS from continuing operations increased 61% to $0.15 per share (US$ millions, Three months ended March 31 except margins and 2009 2008(3) Change per share amounts) $ $ % ------------------------------------------------------------------------- Revenue 177.2 135.5 30.8 Gross Profit(1) 66.8 47.1 42.0 Gross Profit Margin 37.7% 34.7% 3%-pts EBITDA(2) 114.9 74.5 54.3 Net Income 23.0 14.5 58.4 Diluted EPS From Continuing Operations 0.15 0.09 60.9 Diluted Earnings Per Share 0.12 0.08 57.3 Cash Flow From Operating Activities 167.6 34.0 392.9 Notes (1), (2) and (3) are at the end of this release
As China's economy continued to grow at an annualized rate of 6% in the first quarter and forest product market conditions rebounded from the fourth quarter of 2008 due to the positive effects of government economic stimulus spending, the company recorded strong performance in all of its financial metrics. The primary contributor to the 31% increase in revenue was 25% higher sales from Sino-Forest's plantation fibre.
Allen Chan, Chairman and CEO of Sino-Forest, said, "Although the first quarter is typically our slowest of the year and economic growth is lower in China, we are very pleased to report strong double-digit sales increases in all of our business segments in the first quarter of 2009. With demand bolstered by the effects of government spending on infrastructure and housing, customers are gradually replenishing their inventories.
Mr. Chan continued, "Given harvesting typically occurs in the second half of the year, and given the softening in log prices we observed in late Q4 2008 and early Q1 2009, our efforts were primarily focused on sales of purchased plantations. On the acquisition front, we were able to take advantage of the uncertainty in the market and acquire fibre at lower prices than specified in our Master Agreements."
Business Segment Highlights Wood Fibre Operations Plantation Fibre ------------------------------------------------------------------------- First Quarter of 2009 First Quarter of 2008 ----------------------------------------------------------- Price Price Plantation per Total per Total Model Hectares hectare revenue Hectares hectare revenue $ $'000 $ $'000 ------------------------------------------------------------------------- Purchased plantations 13,773 9,169 126,284 9,175 5,476 50,244 Integrated plantations - - - 4,254 12,306 52,349 Planted plantations 1,705 988 1,684 64 1,203 77 ------------------------------------------------------------------------- Total 15,478 8,268 127,968 13,493 7,609 102,670 -------------------------------------------------------------------------
Revenue from sales of plantation fibre increased 24.6% to $128.0 million in the first quarter of 2009, mainly due to an increased volume of fibre sold.
The total volume of fibre sold during the first three months of the year was approximately 2.1 million cubic metres ("m3") from purchased and planted plantations. During the same period last year, we sold a total of approximately 1.4 million m3, with about 863,000 m3 from purchased and planted plantations and approximately 509,000 m3 from integrated plantations.
The average yield of fibre sold under the purchased and planted plantations in the first quarter of 2009 was 137 m3 per hectare, compared to 93 m3 per hectare in the same quarter last year. We obtained an average selling price of $60 per m3 in Q1 of this year compared to $58 per m3 in Q1 of 2008 - representing an increase of 3.2% (including 4.9% appreciation of the Renminbi versus US dollars).
The average yield of harvested logs sold at integrated plantations in the first quarter last year was 120 m3 per hectare, for which we obtained an average selling price of $103 per m3.
The total area of standing timber under Sino-Forest management increased 18% to approximately 410,000 hectares as at March 31, 2009.
Other Fibre
Revenue from sales of imported wood products increased 56.6%, from $24.1 million in Q1 of 2008 to $37.7 million in Q1 of 2009, primarily due to a higher volume of imported logs sold.
Revenue from the sales of wood logs decreased 37.4% when compared to the same period in Q1 of 2008.
Manufacturing and Other Operations
Revenue from our manufacturing and other operations increased 33.2% from $8.6 million in Q1 of 2008 to $11.5 million in Q1 of 2009, mainly as a result of increased sales from greenery projects.
Gross Profit and Margins
Total gross profit increased 42.0% from $47.1 million in Q1 of 2008 to $66.8 million in Q1 of 2009. Gross profit margin, being gross profit as a percentage of revenue, increased from 34.7% in Q1 of 2008 to 37.7% in Q1 of 2009, mainly due to increased sales from plantation fibre operations, which earn a higher gross margin than our other business segments.
Wood Fibre Operations
Gross profit margin from sales of purchased and planted plantations decreased from 63.0% in Q1 of 2008 to 49.8% in Q1 of 2009, resulting from relatively more sales of plantations with a higher fibre cost per m3 this quarter compared to the same period last year.
The gross profit margin for sales of logs at integrated plantation operations was 27.7% or $28 per m3 in Q1 of 2008.
Gross profit margin from sales of imported wood products increased from 2.8% in Q1 of 2008 to 3.9% in Q1 of 2009.
Gross profit margin from sales of wood logs increased from 4.9% in Q1 of 2008 to 9.1% in Q1 of 2009 as a result of a change in mix of species of wood logs sold as compared to 2008.
Manufacturing and Other Operations
Gross margin from our manufacturing and other operations increased from 2.2% in Q1 of 2008 to 13.8% in Q1 of 2009, primarily due to an improvement from nursery segments.
Selling, General and Administration Expenses
Our selling, general and administration expenses increased 51.5%, from $10.6 million in Q1 of 2008 to $16.1 million in Q1 of 2009, due primarily to additional staff complement, increased incentive accrued compensation and increased in research and development expenses.
Net Income
As a result of the foregoing, net income for the period increased 58.4%, from $14.5 million in Q1 of 2008 to $23.0 million in Q1 of 2009. Overall net income for the period as a percentage of revenue increased from 10.7% in Q1 of 2008 to 13.0% in Q1 of 2009.
Cash Flows from Operating Activities of Continuing Operations
Net cash provided from operating activities increased from $34.0 million in Q1 of Q1 2008 to $167.6 million in Q1 of 2009. The increase was due to higher cash provided by operations and cash provided by working capital, which resulted from the decrease in accounts receivables in wood fibre operations.
Capital Expenditures --------------------------------------------- First Quarter of 2009 First Quarter of 2008 Hectares $ million Hectares $ million ------------------------------------------------------------------------- Tree acquisition - Purchased plantations 75,977 245.6 27,706 77.9 Re-planting and maintenance of plantations 5.8 4.4 Manufacturing and Other Operations 5.2 10.0 ------------------------------------------------------------------------- Total 256.6 92.3 ------------------------------------------------------------------------- -------------------------------------------------------------------------
For fiscal 2009, capital expenditures are expected to be around $700 million for plantation acquisitions, replanting and maintenance, and approximately $30 million for the development of manufacturing facilities integrated with plantation operations. These acquisition levels will be adjusted as necessary given future changes in the economic climate in the PRC.
Mandra Update
Sino-Forest has entered into preliminary discussions with Mandra Forestry Finance Limited ("Mandra") and certain holders of Mandra's 12% guaranteed senior notes regarding the possible acquisition by Sino-Forest of their notes and/or additional equity of Mandra. These discussions are at a very preliminary stage and there are no assurances that an acquisition will materialize.
As previously disclosed, Sino-Forest formed an alliance with Mandra in 2005. Sino-Forest currently has, pursuant to and subject to certain conditions set forth in the terms of a shareholders agreement with Mandra, an option to purchase all of the outstanding equity securities of Mandra from the other shareholders of Mandra and shares represented by warrants held by certain warrant holders. This option is exercisable up to May 10, 2010. Upon the expiration of such option, Sino-Forest will have other preemptive rights with respect to proposed transfers of outstanding equity securities of Mandra effective from May 11, 2010 to May 10, 2012.
Outlook
The positive effects of China's stimulus plan and the rebuilding of the Sichuan area should help to sustain economic growth while benefiting numerous industries. We are optimistic about the associated positive ramifications for the forestry sector and the demand for wood fibre. Although fibre prices softened in late Q4 2008/early Q1 2009, we have seen signs of a rebound as prices have moved up recently. However, we do not anticipate prices will reach the overall levels realised in 2008 until the latter part of 2009/early 2010.
The positive aspect to softer fibre prices is that we see some acquisition opportunities at lower prices which we hope to take advantage of before markets rebound to 2008 levels. Even as one of the industry leaders in commercial forest plantations, Sino-Forest only has a 5% market share in China. Therefore, we will pursue certain attractive growth opportunities to strengthen our position in key markets. We will remain vigilant and prudent in assessing such opportunities, as we are committed to developing a critical mass of fibre that is sustainable and profitable in the long term.
Notice of Conference Call
Sino-Forest will hold a conference call for analysts and investors to further discuss its first quarter results on May 11, 2009 at 8:30 am EST / 8:30 pm HKT. To participate, please dial +1-416-644-3425 for local and international callers, or 800-595-8550 for North America toll-free access. Alternatively, to listen to the live webcast and replay in a listen-only mode, go to Sino-Forest's website under "Investor Relations - Earnings Releases" or click on the following link: http://www.sinoforest.com/earningsreleases.asp.
About Sino-Forest Corporation
Sino-Forest Corporation is a leading commercial forest plantation operator in China. Its principal businesses include the ownership and management of forest plantation trees, the sales of standing timber and wood logs and the complementary manufacturing of downstream engineered-wood products. The company's common shares have traded on the Toronto Stock Exchange under the symbol TRE since 1995.
Note (1) to the Financial Highlights table: Gross profit for any period is defined as total revenue less cost of sales. Gross profit is presented as additional information because we believe that it is a useful measure for certain investors to determine our operating performance. Gross profit is not a recognized term under Canadian GAAP and should not be considered as an alternative to net income as an indicator of our operating performance or any other measure of performance derived in accordance with Canadian GAAP. Because it is not a Canadian GAAP measure, gross profit may not be comparable to similar measures presented by other companies.
Note (2) to the Financial Highlights table: EBITDA for any period is defined as income from continuing operations for the period after adding back depreciation and amortization and depletion of timber holdings from cost of sales, for the period. EBITDA is presented as additional information because we believe that it is a useful measure for certain investors to determine our operating cash flow and historical ability to meet debt service and capital expenditure requirements. EBITDA is not a measure of financial performance under Canadian GAAP and should not be considered as an alternative to cash flows from operating activities, a measure of liquidity or an alternative to net income as indicators of our operating performance or any other measures of performance derived in accordance with Canadian GAAP.
Note (3) to the Financial Highlights table: Results have been restated to reflect the classification of particleboard operations as discontinued operations as disclosed in Note 7 Discontinued Operations.
Cautionary note: No stock exchange or regulatory authority has approved or disapproved of information contained herein. Certain information included in this news release is forward-looking and is subject to important risks and uncertainties. When used in this news release, the words "believe", "intend", "estimate", "expect", "plan" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such words. These forward-looking statements are based on current expectations. The results or events predicted in these statements may differ materially from actual results or events and are no guarantees of future performance of Sino-Forest. Factors which could cause results or events to differ from current expectations include, among other things: our ability to acquire rights to additional standing timber, our ability to meet our expected plantation yields, the cyclical nature of the forest products industry and price fluctuation in and the demand and supply of logs, our reliance on joint venture partners, authorized intermediaries, key customers, suppliers and third party service providers, our ability to operate our production facilities on a profitable basis, changes in currency exchange rates and interest rates, and PRC economic, political and social conditions and government policy, and stock market volatility, other factors not currently viewed as material could cause actual results to differ materially from those described in the forwarding-looking statements. For additional information with respect to certain of these and other factors, see the reports filed by Sino-Forest Corporation with applicable Canadian securities administrators. Sino-Forest Corporation disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (Expressed in thousands of United States dollars, except for earnings per share information) (Unaudited) 2009 2008 Three months ended March 31, $ $ ------------------------------------------------------------------------- Revenue 177,234 135,495 Costs and expenses Cost of sales 110,398 88,421 Selling, general and administration 16,115 10,636 Depreciation and amortization 1,129 672 ------------------------------------------------------------------------- 127,642 99,729 ------------------------------------------------------------------------- Income from operations before the undernoted 49,592 35,766 Interest expense (16,795) (10,475) Interest income 1,904 2,881 Exchange losses (93) (2,513) Loss on changes in fair value of financial instruments, net (981) (4,535) Other income 221 393 ------------------------------------------------------------------------- Income before income taxes 33,848 21,517 Provision for income taxes (5,926) (4,274) ------------------------------------------------------------------------- Net income from continuing operations 27,922 17,243 Net loss from discontinued operations (4,917) (2,716) ------------------------------------------------------------------------- Net income for the period 23,005 14,527 ------------------------------------------------------------------------- Earnings per share Basic 0.12 0.08 Diluted 0.12 0.08 ------------------------------------------------------------------------- Earnings per share from continuing operations Basic 0.15 0.09 Diluted 0.15 0.09 ------------------------------------------------------------------------- Loss per share from discontinued operations Basic (0.03) (0.01) Diluted (0.03) (0.01) ------------------------------------------------------------------------- Retained earnings Retained earnings, beginning of period 769,557 540,964 Net income for the period 23,005 14,527 ------------------------------------------------------------------------- Retained earnings, end of period 792,562 555,491 ------------------------------------------------------------------------- ------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Expressed in thousands of United States dollars) (Unaudited) 2009 2008 Three months ended March 31, $ $ ------------------------------------------------------------------------- Net income for the period 23,005 14,527 Other comprehensive (loss) income, net of tax: Unrealized losses on financial assets designated as available-for-sale, net of tax of nil (1,210) (949) Unrealized (losses) gains on foreign currency translation of self-sustaining operations (736) 62,746 ------------------------------------------------------------------------- Other comprehensive (losses) income (1,946) 61,797 ------------------------------------------------------------------------- Comprehensive income 21,059 76,324 ------------------------------------------------------------------------- ------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEETS (Expressed in thousands of United States dollars) (Unaudited) As at As at March December 31, 2009 31, 2008 $ $ ------------------------------------------------------------------------- ASSETS Current Cash and cash equivalents 367,002 441,171 Short-term deposits 46,414 45,784 Accounts receivable 131,065 225,753 Inventories 45,858 43,200 Prepaid expenses and other 27,385 21,768 Convertible bonds 25,044 2,659 Assets of discontinued operations 27,950 31,122 ------------------------------------------------------------------------- Total current assets 670,718 811,457 ------------------------------------------------------------------------- Timber holdings 1,839,829 1,653,306 Capital assets, net 67,490 63,704 Other assets 78,146 75,457 ------------------------------------------------------------------------- 2,656,183 2,603,924 ------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current Bank indebtedness 75,493 67,188 Current portion of long-term debt 12,500 - Accounts payable and accrued liabilities 180,430 179,903 Income taxes payable 6,626 6,383 Derivative financial instrument 2,916 5,214 Liabilities of discontinued operations 30,030 32,004 ------------------------------------------------------------------------- Total current liabilities 307,995 290,692 ------------------------------------------------------------------------- Long-term debt 705,573 714,468 ------------------------------------------------------------------------- Total liabilities 1,013,568 1,005,160 ------------------------------------------------------------------------- Commitments and Contingencies Shareholders' equity Equity portion of convertible senior notes 70,462 70,462 Share capital 561,021 539,315 Contributed surplus 8,685 7,599 Accumulated other comprehensive income 209,885 211,831 Retained earnings 792,562 769,557 ------------------------------------------------------------------------- Total shareholders' equity 1,642,615 1,598,764 ------------------------------------------------------------------------- 2,656,183 2,603,924 ------------------------------------------------------------------------- ------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS (Expressed in thousands of United States dollars) (Unaudited) 2009 2008 Three months ended March 31, $ $ ------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income for the period 23,005 14,527 Net loss from discontinued operations 4,917 2,716 Add (deduct) items not affecting cash Depletion of timber holdings included in cost of sales 64,205 38,054 Depreciation and amortization 1,129 672 Accretion of convertible senior notes 2,859 - Stock-based compensation 1,086 1,133 Loss on changes in fair value of financial instruments, net 981 4,535 Interest income from Mandra (300) (300) Other 1,294 529 Exchange gains (losses) (19) 2,497 ------------------------------------------------------------------------- 99,157 64,363 Net change in non-cash working capital balances 68,428 (30,366) ------------------------------------------------------------------------- Cash flows from operating activities of continuing operations 167,585 33,997 ------------------------------------------------------------------------- Cash flows used in operating activities of discontinued operations (2,789) (1,905) ------------------------------------------------------------------------- CASH FLOWS USED IN INVESTING ACTIVITIES Additions to timber holdings (233,861) (83,637) Increase in other assets (5,257) (22,411) Additions to capital assets (3,263) (10,044) Increase in non-pledged short-term deposits (864) (3,947) Business acquisition - (1,928) Acquisition of convertible bonds (200) - Proceeds from disposal of capital assets - 1 ------------------------------------------------------------------------- Cash flows used in investing activities (243,445) (121,966) ------------------------------------------------------------------------- Cash flows used in investing activities of discontinued operations (929) - ------------------------------------------------------------------------- CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES Increase in long-term debt - 855 Increase (decrease) in bank indebtedness 8,311 (6,471) Decrease (increase) in pledged short-term deposits 228 (1,938) Payment on derivative financial instrument (2,891) (2,100) ------------------------------------------------------------------------- Cash flows from (used in) financing activities 5,648 (9,654) ------------------------------------------------------------------------- Cash flows used in financing activities of discontinued operations (1) (348) ------------------------------------------------------------------------- Effect of exchange rate changes on cash and cash equivalents (238) 1,408 ------------------------------------------------------------------------- Net decrease in cash and cash equivalents (74,169) (98,468) Cash and cash equivalents, beginning of period 441,171 328,690 ------------------------------------------------------------------------- Cash and cash equivalents, end of period 367,002 230,222 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Supplemental cash flow information Cash payment for interest charged to income 24,569 16,458 Interest received 681 2,595 ------------------------------------------------------------------------- -------------------------------------------------------------------------
Sino-Forest Corporation
CONTACT: Dave Horsley, Senior Vice President and Chief Financial
Officer, Tel: (905) 281-8889, Email: davehorsley@sinoforest.com; Louisa Wong,
Senior Manager, Investor Communications & Relations, Tel: +852 2514 2109,
Email: louisa-wong@sinoforest.com
