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Press release from Marketwire

Hanfeng Announces Third Quarter Fiscal 2010 Financial Results

Monday, May 10, 2010

Hanfeng Announces Third Quarter Fiscal 2010 Financial Results20:46 EDT Monday, May 10, 2010TORONTO, ONTARIO--(Marketwire - May 10, 2010) - Hanfeng Evergreen Inc. ("Hanfeng" or the "Company") (TSX:HF) today reported its financial results for the third quarter and nine months of fiscal 2010 ended March 31, 2010. All amounts are in Canadian dollars unless otherwise noted.Quarter Highlights -- Sales increased 10 percent in RMB -- Gross profit increased 2 percent in RMB -- Strong market acceptance for new CarbonPower(R) product Summary Financial Results For the three month For the nine month In $Cnd. thousands except per period ended March 31 period ended March 31 share data 2010 2009(1) 2010 2009(1) ---------------------------------------------------------------------------- Sales $69,982 $75,849 $186,482 $225,297 Gross profit 10,475 12,169 29,551 35,126 EBITDA(2) 9,160 11,402 26,861 33,178 Net Income 7,298 10,070 19,707 30,317 Basic EPS 0.12 0.16 0.32 0.49 Diluted EPS 0.12 0.16 0.32 0.49 (1)The Company changed its fiscal year end from December 31 to June 30, effective June 30, 2009. Therefore, the comparative 3 and 9 month periods in 2009 were previously reported as the first quarter of fiscal 2009 and the third and fourth quarter of fiscal 2008. (2)Earnings before interest, taxes, depreciation, and amortization (EBITDA) is a non-GAAP financial measure, which the Company believes is meaningful information for purposes of performance evaluation and it allows for comparisons of the Company's performance to the industry as it eliminates the impact of financing decisions, capital structure and the cost basis of assets. Hanfeng calculates it by adding (1) net income, (2) interest expense (or deducting interest income), (3) amortization expense reported as part of cost of goods sold, (4) amortization expense reported as a line item on the income statements, (5) fixed asset write-down and (6) income tax expense reported on the income statement; and by deducting foreign exchange gain. This might not be the same definition used by other companies. Revenue from sales of the Company's value-add fertilizer products were $69.98 million in the third quarter ended March 31, 2010, compared to $75.85 million in the quarterly period ended March 31, 2009 as a result of foreign exchange, a lower average selling price as commodity prices remained weak during the period and partially offset by an increase in volume sold. Total sales volume in the quarter was 175,653 metric tonnes (MT), which included 36,262 MT of Hanfeng's newest value-add product, CarbonPower coated urea (CPU). Sales volumes of the Company's slow and controlled release products (SCR) in the third quarter of fiscal 2010 increased 1 percent year over year to 139,391 MT. Furthermore, the Company sales have not been affected by the drought conditions in Southern China.EBITDA in the quarter ended March 31, 2010 was $9.16 million compared to $11.40 million in the quarter ended March 31, 2009 primarily due to foreign exchange, lower sales prices and gross profit, and an increase in costs primarily associated with the commercialization of new products (CarbonPower(R)) and stock based compensation expense partially offset by a decrease in selling, general and administrative expenses. Net income was $7.30 million for the current quarter versus $10.07 million in same period in 2009 primarily as a result of the aforementioned items, a $0.81 million foreign exchange gain in the quarter ended March 31, 2009 and the accrual of income taxes at 50 percent, based on the income tax holiday schedule for fiscal 2010. Hanfeng's tax free holidays expired effective this fiscal year and its earnings are now subject to Chinese income tax. Earnings per share (EPS) was $0.12 for the third quarter of fiscal 2010 versus $0.16 in the comparative period in 2009. Sales, EBITDA, and net income for the nine-month period ended March 31, 2010 were $186.48 million, $26.86 million and $19.71 million respectively, versus $225.30 million, $33.18 million, and $30.32 million in the comparative period ended March 31, 2009. EPS for the nine month period ending March 31, 2010 was $0.32 ($0.32 fully diluted), compared to $0.49 ($0.49 fully diluted) for the comparative period ended March 31, 2009. The decreases were the result of previously mentioned items as well as first time maintenance shut-downs at the Company's largest wholly owned facility in Heilongjiang during the first quarter of fiscal 2010. In the third quarter of fiscal 2010, Hanfeng's average selling price for SCR was RMB 2,737 per MT, compared to RMB 3,032 per MT in the quarter ended March 31, 2009. The reduction is primarily the result of continued weakness in the price of urea, phosphate and potash (conventional fertilizers), which are the raw materials for Hanfeng's SCR and collectively account for approximately 90 percent of Hanfeng's cost of goods sold, as well as being the primary competition in the China agriculture market. As a value-add manufacturer, Hanfeng is highly sensitive to changes in raw material pricing for both a cost and competitive perspective. Although the overall market continues to experience the effects of the commodity liquidations in 2009, raw material pricing during the current quarter began to improve as the average price of urea, phosphate increased 9 percent and 1 percent respectively, while potash decreased 2 percent, compared to the quarter ending December 31, 2009. Correspondingly, Hanfeng's average selling price for SCR increased 7 percent over the quarter ending December 31, 2009. The actual production volume of SCR in the third quarter of 2010 increased by 9 percent year over year to 144,699 MT (181,188 including CPU). For the nine-month period, production of SCR increased 2 percent to 415,165 (451,654 including CPU) as a result of net new production from the Company's joint ventures and partially offset by the first time maintenance shut down at the Heilongjiang facility in the first quarter of fiscal 2010. Finished goods on hand at the end of the quarter was 13,646 metric tonnes.Gross profit decreased by 14 percent in the quarter ending March 31, 2010 and 16 percent in the nine month period of fiscal 2010 versus the comparative periods respectively as a result of foreign exchange, a lower gross profit per metric ton partially offset by an increase in tonnage sold. For the quarter ending March 31, 2010, when compared with quarter ended March 31, 2009, gross profit in RMB increased by 2 percent, which is the result of a 10 percent increase in sales revenue, partially offset by the decreased gross margin percentage (15.0 percent for the quarter ending March 31 2010 vs. 16.1 percent for the quarter ending March 31, 2009). Gross profit as a percentage of sales decreased 1.7 percent for the quarter ending March 31, 2010 from the quarter ending December 31, 2009. Gross profit for SCR on a per metric ton basis for the quarter ending March 31 2010 was RMB 441, compared with RMB 489 for the quarter ending March 31, 2009, a 10 percent decrease, due to the aforementioned market conditions. Gross profit for SCR per metric ton in the third quarter of fiscal 2010 increased by RMB 14 (or 3 percent) from the second quarter of fiscal 2010. Gross profit per metric ton in Hanfeng's established markets was consistent in the third quarter of fiscal 2010 compared to the first and second quarter of fiscal 2010, but this was offset by a lower gross profit per ton in the newly commissioned Shandong facility. Gross profit per ton on the new CPU was RMB 193.The average foreign exchange rate (i.e., RMB to CAD dollar) for the quarter ended March 31, 2010 was 6.53 compared with 5.49 in the quarter ended March 31, 2009, representing a 19 percent appreciation in the Canadian dollar. While Hanfeng earns almost all of its revenue and pays almost all of its suppliers in RMB, it reports its financial results in Canadian dollars. The appreciation of the Canadian dollar over the reporting period had a negative impact on revenue and gross profits reported in Canadian dollars. As at March 31, 2010, Hanfeng reported cash and cash equivalents of $45.15 million and net working capital of $153.53 million. As at March 31, 2010, Hanfeng had no long-term debt and bank debt of nil. Liquidity and Capital Resources ---------------------------------------------------------------------------- In thousands of Canadian dollars except for ratios March 31, 2010 June 30, 2009 ---------------------------------------------------------------------------- Current ratio (1) 33.1:1 4.4: 1 ---------------------------------------------------------------------------- Cash & cash equivalents 45,149 92,342 ---------------------------------------------------------------------------- Working capital 153,532 148,786 ---------------------------------------------------------------------------- Total assets 265,489 317,266 ---------------------------------------------------------------------------- Total debt (2) Nil 39,146 ---------------------------------------------------------------------------- Total equity 260,704 273,777 ---------------------------------------------------------------------------- Total debt / Total equity N/A 14% ---------------------------------------------------------------------------- Notes: 1. Current ratio = Current Assets / Current Liabilities 2. Total debt does not include accounts payable, accrued liabilities, advances from customers and income tax payable. Business Highlights -- Hanfeng successfully completed the first phase of fertilizer field trials, jointly conducted with Malaysia's Ministry of Agriculture (MMOA). The trials were carried out on rice crops in Perak State, Malaysia using Hanfeng's value added fertilizers. The field trials produced exceptional results with crops treated with a variety of Hanfeng's formulated slow and controlled release fertilizers producing higher yields and better quality rice crops with fewer applications. Additionally, the products improved the soil quality by providing micronutrients such as sulfur, which similar to China, is deficient in Malaysian soil. The trials also revealed a decrease in nutrient residue, which is attributable to the slow release characteristics of Hanfeng fertilizers. Malaysia represents a significant new market for the Company's slow release products. -- The Company received verification that the Chemical Industry Standard for Urea Formaldehyde Slow Release Fertilizer (UF) and related UF products jointly drafted by Hanfeng and the National Center for Quality Supervision and Testing of Chemical Fertilizers was unanimously approved. This standard will provide enforceable guidelines for the production of UF slow release fertilizer in China, as well as further enhance Hanfeng's leading brand. -- Hanfeng jointly hosted the "3rd International Slow-Release Fertilizer Industry Development Forum" with the China National Chemical Information Center (CNCIC) on April 22-24, 2010 in Beijing. The forum, received strong support from National Agro-Tech Extension and Service Centre (NATESC), a division of the Ministry of Agriculture (MOA), and focused on enhancing international cooperation, accelerating slow release fertilizer industry development; reducing non-point source pollution, and other related topics. It was attended by more than 300 guests from related governmental authorities, well-known Chinese and international experts and scholars, as well as representatives from major slow release fertilizer producers and distributors. -- Hanfeng has amended its distribution agreement for CarbonPower(R) with FBSciences Inc., enabling the Company to export the product to Southeast Asia on a non-exclusive basis. Hanfeng signed an exclusive distribution agreement with FBSciences Inc. to distribute CarbonPower(R) in China on November 9, 2009. The term of the agreement remains 2 years with a right of first refusal. Hanfeng field tested CarbonPower(R), used in conjunction with its own value add fertilizers, during fiscal 2009 in a number of provinces with encouraging results. Hanfeng applies CarbonPower(R) to conventional fertilizer thereby improving its effectiveness. -- Construction on the Company's first joint venture outside China is currently on schedule for commissioning in the first quarter of fiscal 2011. Located in Surabaya, Indonesia, the initial plant will have an annual productive design capacity of 150,000 metric tonnes. Hanfeng has partnered with two established agricultural companies in Indonesia: one, a distributor of agricultural products in Southeast Asia, and the other, a large-scale palm oil grower, who under the terms of the joint venture, will purchase 80 percent of the production from the facility for its own internal use. Mr. Paul Begin, CFO of Hanfeng, will host a conference call to review the Company's financial and operational performance. Management invites analysts and investors to participate on the conference call. Date: Tuesday May 11, 2010 Time: 10:00 am, Eastern Time Dial in Number: 416-340-8018 or 1-866-223-778 Taped Replay: 416-695-5800 or 1-800-408-3053 Taped Replay Pass Code: 8508185 Webcast Presentation Link: Hanfeng's third quarter 2010 financial statements and MD&A have been filed and will be available at Hanfeng Evergreen Inc. Hanfeng is the largest producer of slow and controlled release fertilizers in China. It was the first company to introduce the concept of slow and controlled release fertilizers into China's agriculture market with its establishment of the first commercial scale production in China. All production facilities are located in prime agricultural regions of China. The Company is headquartered in Toronto, Ontario and its shares trade on the Toronto Stock Exchange. This press release contains forward-looking statements based on current expectations. These forward-looking statements entail various risks and uncertainties that could cause actual results to differ materially from those reflected in these forward-looking statements. Risks and uncertainties about Hanfeng's business are more fully discussed in the Company's disclosure materials, including its annual information form and MD&A, filed with the securities regulatory authorities in Canada. All amounts are stated in Canadian dollars except for noted otherwise.FOR FURTHER INFORMATION PLEASE CONTACT: Hanfeng Evergreen Inc. Paul Begin Chief Financial Officer (416) 368-8588 or Spinnaker Capital Markets Inc. Kevin O'Connor Investor Relations (416) 962-3300