TORONTO, Aug. 10 /PRNewswire-FirstCall/ -- Sino-Forest Corporation ("Sino-Forest") (TSX:TRE and TRE.S) announced today its second quarter 2006 financial results for the period ended June 30, 2006. All amounts in this release are expressed in U.S. dollars unless otherwise indicated.
Financial highlights for the three-month and six-month periods ended
June 30, 2006
(US$ millions,
except margin
and per share Second Quarter Six-month period
amounts) ended June 30 ended June 30
2006 2005 Change 2006 2005 Change
(%) (%)
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Revenue 107.3 102.9 4.3 206.1 178.5 15.5
Gross Profit(1) 28.4 25.8 10.3 50.8 46.4 9.6
Gross Profit
Margin 26.5 25.1 1.4 pts 24.7 26.0 (1.3 pts)
EBITDA(2) 47.6 51.6 (7.9) 89.8 87.9 2.1
Net Income 14.4 13.2 8.5 23.8 21.0 13.6
Diluted Earnings
Per Share 0.10 0.10 6.8 0.17 0.15 11.7
Cash Flow From
Operating
Activities 32.1 50.5 (36.5) 97.3 88.9 9.5
Note: Footnotes (1) and (2) at end of this release
"We are pleased to report yet another strong quarter of earnings growth," said Allen Chan, Sino-Forest's Chairman and CEO. "During the quarter we made progress on our strategic goal which is to double the amount of fibre we supply to the markets in the PRC. We made our first strategic plantation acquisition in Hunan province, gateway to China's south-western region. While the cost of this acquisition seems higher than historical ones, yields in this area are of three times higher than those of our other purchased plantations. As a result our return on capital invested in the south-western provinces will be as attractive and in some cases may be superior to the historical plantation acquisitions. In addition, we have secured a twelve-year wood fibre supply agreement with the Inner Mongolia Autonomous Region to supply 1.5 million cubic metres of wood fibre to the market annually."
Business Segment Highlights
Revenue increased 4.3%, from $102.9 million in the second quarter of 2005 to $107.3 million in the second quarter of 2006. The increase was due primarily to increase in revenue from imported wood products and manufacturing and other operations partially offset by a decline in revenue from wood chips and logs.
Second Quarter 2006 Second Quarter 2005
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Revenue $'000 % $'000 %
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Wood Fibre Operations
- Standing timber 46,307 43.2 46,053 44.8
- Wood chips and logs 23,180 21.6 41,248 40.1
- Imported wood
products 32,064 29.9 13,604 13.2
Manufacturing and Other
Operations 5,723 5.3 1,981 1.9
Total revenue 107,274 100.0 102,886 100.0
Wood Fibre Operations
Standing Timber
Revenue from the sales of the standing timber in the second quarter of 2006 experienced a slight increase of 0.6% at $46.3 million versus $46.1 million during the corresponding period in 2005. The increase in revenue attributed to a 14.3% increase in the average selling price per hectare offset by a 12.0% reduction in hectares of standing timber sold. During the second quarter, 19,830 hectares of trees were sold compared to 22,546 hectares during the second quarter of 2005. Of the total hectares sold, 11,459 hectares were from the Heyuan Pine Undertaking, and 6,999 hectares and 1,372 hectares were sourced from the purchased and planted trees plantations, respectively. The average selling price in the second quarter of 2006 was $2,335 per hectare compared to $2,043, a 14.3% increase. The increase in the average selling price per hectare primarily relates to the sale of purchased plantation in the second quarter of 2006 which had a higher yield and therefore higher selling price per hectare compared to the second quarter of 2005.
In terms of acquisition, 3,010 hectares of mainly fir trees with an average age of 15 years old were acquired in Hunan province for $12.9 million. The purchase price of these plantations was higher on a per hectare basis as the yields are of three times higher than those mature pines acquired in the Heyuan Undertaking.
Wood Chips and Logs
Revenue from the sale of wood chips and logs decreased by 43.8% to $23.2 million in the second quarter of 2006, compared to $41.2 million in the second quarter of 2005. The decrease in revenue was due to a decline of 44.8% in the volume of wood chips sold partially offset by a 2.8% increase in the average selling price.
As reported in the first quarter of 2006 report, the significant decline in wood chips and logs revenue was mainly due to the fact that one of the two authorized intermediaries used by Sino-Forest to process wood chips ceased to provide wood chipping service since the fourth quarter 2005. During this quarter, the corporation was able to shift some of its wood fibre quota to the remaining authorized intermediary to process into wood chips. The remaining quota will be utilized in the manufacture of our wood flooring products.
Imported Wood Products
Revenue from sales of imported wood products increased 135.7% from $13.6 million in the second quarter of 2005 to $32.1 million in the second quarter of 2006, primarily attributed to an increase in higher sales volumes.
Manufacturing and Other Operations
Once again, revenue from this business segment increased by 188.9% to $5.7 million during the second quarter compared to $2.0 million in the corresponding quarter in 2005. The sharp increase and continued demand is mainly driven by increase in revenue from the flooring and greening project sales.
Gross profit during the second quarter increased by 10.3% to $28.4 million versus $25.8 million during the same period last year. Gross profit margin (as a percentage of total revenue) during the second quarter increased to 26.5% compared to 25.1% during the same period in 2005, mainly due to the increase in gross profit margin on standing timber.
Total capital expenditures in the second quarter of 2006 were $47.4 million compared to $61.8 million during the same period in 2005. $41.5 million was spent on acquiring 16,903 hectares at purchased plantations, in addition to $4.3 million on re-planting and maintenance, and the balance of $1.6 million on the manufacturing division.
A full copy of the company's Management Discussions and Analysis and Financial Statements for second quarter 2006 are available on the corporation's website http://www.sinoforest.com/ under "Company Releases" or go directly to http://www.sinoforest.com/companyreleases.asp
Notice of Conference Call
Sino-Forest will hold an investor conference call to further discuss its second quarter 2006 financial results on August 11, 2006 at 8:30 am EST / 8:30 pm HKT. To participate, please dial 1-303-262-2191 for international callers and 1-800-257-6566 for North America toll-free access.
For live webcast and replay, logon on to Sino-Forest website under "Earnings Release" or go dial 1-416-640-1917 and enter passcode 21199251 followed by the number sign.
About Sino-Forest Corporation
Sino-Forest Corporation, a publicly-listed company on the Toronto Stock Exchange, is the leading foreign owned commercial forestry plantations operator in China in terms of plantation area. The Corporation started its operations in China in 1994 and was the first foreign and privately managed company involved in forest products in the country. Its principal business activities include the ownership and management of forestry plantation trees and the sales and trading of logs, timber and wood chips. Besides being a leading supplier of commercial wood fibre, Sino-Forest also has manufacturing operations to complement its business operations.
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 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.
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.
SINO-FOREST CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(Expressed in thousands of U.S. dollars, except for earnings per share
amounts)
(Unaudited)
Three months ended June 30 Six months ended June 30
2006 2005 2006 2005
$ $ $ $
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Revenue 107,274 102,886 206,138 178,531
Costs and expenses
Cost of sales 78,838 77,106 155,296 132,151
Selling, general and
administration 5,682 3,803 11,463 7,941
Depreciation and
amortization 929 754 1,741 1,459
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85,449 81,663 168,500 141,551
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Income from operations
before the undernoted 21,825 21,223 37,638 36,980
Interest expense (9,180) (7,250) (16,801) (14,473)
Interest income 1,458 1,218 2,596 2,060
Exchange gain (losses) 1,744 (482) 3,260 (600)
Other income 342 90 674 257
Amortization of deferred
financing costs (485) (324) (850) (669)
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Income before income
taxes 15,704 14,475 26,517 23,555
Provision for income
taxes (1,344) (1,234) (2,693) (2,578)
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Net income for the period 14,360 13,241 23,824 20,977
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Earnings per share
Basic 0.10 0.10 0.17 0.15
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Diluted 0.10 0.10 0.17 0.15
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Retained Earnings
Retained earnings,
beginning of period 321,458 238,043 311,994 230,307
Net income for the
period 14,360 13,241 23,824 20,977
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Retained earnings,
end of period 335,818 251,284 335,818 251,284
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SINO-FOREST CORPORATION
CONSOLIDATED BALANCE SHEETS
(Expressed in thousands of U.S. dollars)
Unaudited Audited
As at As at
June 30 December 31
2006 2005
$ $
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ASSETS
Current
Cash and cash equivalents 219,271 108,418
Short-term deposits 12,283 30,268
Accounts receivable 84,706 119,989
Due from PRC CJV partners 4,968 3,842
Inventories 15,672 7,622
Prepaid expenses and other 15,325 7,201
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Total current assets 352,225 277,340
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Timber holdings 590,333 513,412
Capital assets, net 86,976 81,077
Other assets 35,893 23,442
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1,065,427 895,271
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Bank indebtedness 43,862 41,312
Accounts payable and accrued liabilities 74,002 85,212
Income taxes payable 885 738
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Total current liabilities 118,749 127,262
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Long-term debts 450,000 300,000
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Total liabilities 568,749 427,262
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Commitments and Contingencies
Shareholders' equity
Share capital 143,511 142,815
Contributed surplus 2,413 1,804
Cumulative translation adjustment 14,936 11,396
Retained earnings 335,818 311,994
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Total shareholders' equity 496,678 468,009
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1,065,427 895,271
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SINO-FOREST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in thousands of U.S. dollars) (Unaudited)
Three months ended Six months ended
June 30 June 30
2006 2005 2006 2005
$ $ $ $
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CASH FLOWS FROM OPERATING
ACTIVITIES
Net income for the period 14,360 13,241 23,824 20,977
Add (deduct) items not
affecting cash
Depletion of timber
holdings included in
cost of sales 24,808 29,655 50,385 49,448
Depreciation and
amortization 929 754 1,741 1,459
Stock-based compensation 420 696 792 1,888
Amortization of deferred
financing costs 485 324 850 669
Interest income from
Mandra - (170) (300) (170)
Other (37) (39) (75) (78)
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40,965 44,461 77,217 74,193
Net change in non-cash
working capital balances (8,908) 5,997 20,115 14,677
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Cash flows from operating
activities 32,057 50,458 97,332 88,870
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CASH FLOWS FROM (USED IN)
FINANCING ACTIVITIES
Increase in long-term
debts 100,000 - 150,000 -
Increase (decrease) in
bank indebtedness (1,026) (8,612) 2,422 (4,720)
Issuance of shares 513 - 513 -
Increase in deferred
financing costs (101) - (3,001) -
Decrease (increase) in
pledged short-term
deposits (142) 1,352 (1,204) (2,877)
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Cash flows from (used in)
financing activities 99,244 (7,260) 148,730 (7,597)
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CASH FLOWS USED IN
INVESTING ACTIVITIES
Additions to timber
holdings (45,635) (69,093) (138,395) (139,324)
Additions to capital
assets (1,641) (4,263) (6,989) (5,530)
Decrease in non-pledged
short-term deposits 169 2,125 19,476 1,748
Increase in other assets (500) (15,002) (10,000) (15,022)
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Cash flows used in
investing activities (47,607) (86,233) (135,908) (158,128)
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Effect of exchange rate
changes on cash and
cash equivalent 611 - 699 -
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Net increase (decrease)
in cash and cash
equivalents 84,305 (43,035) 110,853 (76,855)
Cash and cash
equivalents, beginning
of period 134,966 167,346 108,418 201,166
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Cash and cash
equivalents, end
of period 219,271 124,311 219,271 124,311
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Supplemental cash
flow information
Cash payment for
interest charged
to income 802 407 15,077 14,474
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