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Press release from Marketwire

Hanfeng Evergreen Announces Second Quarter 2012 Financial Results

Tuesday, February 14, 2012

Hanfeng Evergreen Announces Second Quarter 2012 Financial Results00:03 EST Tuesday, February 14, 2012TORONTO, ONTARIO--(Marketwire - Feb. 13, 2012) - Hanfeng Evergreen Inc. (TSX:HF) ("Hanfeng" or the "Company"), a leading provider of value-add fertilizers in China and South East Asia, today reported its financial results for the three-month and six-month periods ended December 31, 2011. All amounts are in Canadian dollars unless otherwise noted. Operational and Financial Highlights:China:Hanfeng secured sales contracts with Beidahuang Agricultural Company Limited and its affiliates (collectively "Beidahuang") for 200,000 metric tons ("MT") of slow and controlled release fertilizer ("SCR") scheduled for delivery primarily during the third and fourth quarters of fiscal 2012 (January - April 2012). The product contracted for is the New Hybrid Product made up of mostly SCR products, with certain NE products included as additives ("BDH 200,000 MT Hybrid Order"). The majority of production in the second quarter was stock-piled in order to satisfy the requirements of the BDH 200,000 MT Hybrid Order. Sales from the China operations were positively impacted by a small amount of the BDH 200,000 MT Hybrid Order being recognized into revenue during the second quarter of fiscal 2012. In an effort to reduce the working capital demands of this order, Hanfeng requested the customer to take early delivery of some of the goods. Indonesia: The Indonesian joint-venture's quarterly production was 8,632 MT (net to Hanfeng), or approximately 35,000 MT (net to Hanfeng) on an annualized basis, representing approximately 45percent capacity utilization levels. Production was negatively affected during the quarter by adverse weather conditions whereby goods could not be shipped in the second quarter of fiscal 2012, causing finished goods inventory storage to be reduced, and production to be curtailed. In addition, certain new product mixes were trialed during the second quarter of fiscal 2012, which diminished the overall productive output. Construction of the additional 200,000 MT per annum of bulk blending capacity was completed and the facility was commissioned in the early part of the third quarter of fiscal 2012. Summary Financial ResultsFor the three-month period ended Dec 31For the six-month period ended Dec 31In Cdn $. thousands except per share data2011201020112010Sales$45,823$65,23057,546$107,835Gross profit6,9686,9468,54511,850EBITDA5,9565,7225,03210,865Net Income2,912(732)9132,390Basic IPS0.05(0.01)0.020.03Diluted IPS0.05(0.01)0.020.03Sales were $45.8 million during in the second quarter of fiscal 2012 compared to sales of $65.2 million during the comparative period last year. The main reason for the decrease in sales was lower volumes of sales in the second quarter of fiscal 2012, when compared with the same period in fiscal 2011. This was a result of changes in delivery times as specified by the sales contracts with the Company's largest customer.Gross margin increased to 15.2 percent in the second quarter of fiscal 2012, as compared to 10.6 percent in same period last year. The increase in gross margin as a percentage of sales is due to higher margins at the Heilongjiang facility compared to the same period last year. Gross margins were also positively impacted by higher margins at the Indonesian Joint Venture, resulting from a sale of inventory whose raw material prices were below current market prices, as a result of a market price fluctuations and timing of sale. Gross profit was relatively unchanged between the second quarter of fiscal 2012 and the comparative period last year, despite lower sales volumes in the most recent quarter, primarily due to the aforementioned gross margin factors.General and Administrative ("G&A") expenses increased to $2.6 million during the second quarter of fiscal 2012 from $1.6 million during the second quarter of fiscal 2011. The reasons for this increase include foreign exchange losses in Indonesia (as many transactions are settled in USD, and not in Rp), increased stock based compensation expense and the impact of commercial operations commencing at the Indonesian Joint Venture during Q2FY11. EBITDA increased during the second quarter of fiscal 2012 to $6.0 million from $5.7 million during the same period last year. Net income for second quarter of fiscal 2012 was $2.9 million, compared to net loss of $0.7 million in the same period last year. The main reasons for the increase in net income were higher gross margins and gross profit during second quarter of fiscal 2012, notwithstanding lower volumes in China, and the impact of the adjustment for a non-cash impairment of fixed assets related the Jiangsu Prill Tower recorded in the second quarter of fiscal 2011. Basic and diluted income per share ("IPS") was $0.05 second quarter of fiscal 2012 versus a loss of $0.01 in the same period in 2011.For the six-month period ended December 31, 2011 (the "first half of fiscal 2012"), sales decreased to $57.5 million versus $107.8 million during the same period last year, primarily due to the Maintenance Turnaround at the Company's Heilongjiang Facility in the first quarter of fiscal 2012 and the aforementioned inventory stockpiling, partially offset by increased production from the Indonesian Joint Venture after its initial commissioning in October 2010.Gross profit was $8.5 million and gross margin as a percentage of sales was 14.8 percent in the first half of fiscal 2012 versus $11.9 million and 11 percent respectively in the same period last year. G&A expenses increased to $5.1 million during first half of fiscal 2012 from $3.2 million during the same period last year due to the aforementioned factors as well as labor costs and what would normally be production costs at the Company's Heilongjiang Facility being reclassified as G&A expenses during the Maintenance Turnaround at the facility in the first quarter of fiscal 2012. EBITDA decreased during the first half of fiscal 2012 to $5.0 million from $10.9 million during the same period last year, primarily due to lower sales volumes. Net income for the first half of fiscal 2012 was $0.9 million, compared to net income of $2.4 million in the same period last year. The main reasons for the lower net income were a one-time gain in the comparative period relating to an IFRS implementation recalculation regarding the purchase of the 50% of Hanfeng Slow-Release Fertilizer (Canada) Co. Ltd. in July 2010, a reduced effective tax rate during the comparative period in fiscal 2011, and lower sales volumes in the first half of fiscal 2012 as described above. Basic and diluted IPS was $0.02 in the first half of fiscal 2012 versus $0.03 in the same period last year.Liquidity and Capital ResourcesIn thousands of Canadian dollars except for ratiosDecember 31, 2011June 30, 2011Current ratio (1)5.63:113.1:1Cash24,41765,517Working capital193,919177,305Total assets347,491298,410Total bank debt12,48010,527Total equity302,723280,961Total debt / Total equity4.1%3.7%Notes: (1) Current ratio = Current Assets / Current LiabilitiesCash was $24.4 million as at December 31, 2011, compared to $65.5 million as at June 30, 2011. Cash was used to finance working capital, predominantly inventory purchases, and to repurchase shares under the Company's Normal Course Issuer Bid which was renewed in December 2011. Total inventory and advances to suppliers increased by $111.7 million to $197.1 million as at December 31, 2011. The increase was mainly due to the inventory build-up process in the first quarter and second of fiscal 2012 in preparation for production and delivery of the Beidahuang orders in the third quarter and fourth quarter of fiscal 2012.The Company will hold a conference call to discuss the financial results on Tuesday, February 14, 2012 at 10:00 a.m. Eastern Standard Time (EST). Mr. Niral Merchant, CFO and Mr. Loudon Owen, Non-Executive Chairman of the Board of Directors will host the call, and invite analysts and investors to participate in the conference call.Date: Tuesday, February 14, 2012 Time: 10:00 a.m. Eastern Standard Time Dial in Number: 1-888-312-9865 or 1-719-457-2646 Taped Replay: 1-877-870-5176 or 1-858-384-5517 Taped Replay Pass Code: 6455600 Webcast Presentation Link: http://viavid.net/dce.aspx?sid=0000938DHanfeng's financial statements and MD&A have been filed on SEDAR and will be available at www.sedar.com.About Hanfeng Evergreen Inc. Hanfeng is a leading producer and supplier of value-added fertilizer solutions in emerging markets. It is one of the largest producers of slow and controlled release fertilizer in two of world's most significant agricultural markets: the People's Republic of China ("China") and the Republic of Indonesia. As the first company to introduce slow and controlled release fertilizers into China's agriculture market, Hanfeng has established itself both as a market leader and innovator. A Canadian Company, Hanfeng is headquartered in Toronto, Ontario and its shares trade on the Toronto Stock Exchange under the ticker HF. EBITDA: Earnings before interest, taxes, depreciation, and amortization ("EBITDA") is a non-IFRS 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 reported on the income statements (or deducting interest income) (3) amortization expense reported as part of cost of goods sold on the income statements, (4) amortization expense reported as a line item on the income statements, (5) income tax expense reported on the income statements, (6) write-downs of intangible assets and property, plant and equipment write-down and (7) and by deducting foreign exchange gain (loss). EBITDA does not have a standard meaning prescribed under IFRS and is therefore unlikely to be comparable to similar measures presented by other companies.This press release contains forward-looking statements based on current expectations. Forward looking statements include, without limitation, statements evaluating market and general economic conditions, and statements regarding growth strategy and future-oriented projected revenue, costs and expenditures. Actual results could differ materially from those projected and should not be relied upon as a prediction of future events. A variety of inherent risks, uncertainties and factors, many of which are beyond Hanfeng's control, affect the operations, performance and results of Hanfeng and its business, and could cause actual results to differ materially from current expectations of estimated or anticipated events or results. Some of these risks, uncertainties and factors include the impact or unanticipated impact of: current, pending and proposed legislative or regulatory developments in the jurisdictions where Hanfeng operates, in particular in China and the Republic of Indonesia; changes in tax laws; political conditions and developments; intensifying competition from established competitors and new entrants in the fertilizer industries; technological change; currency value fluctuation and changes in foreign exchange restrictions; changes in Chinese government support or restrictions on foreign investment; general economic conditions worldwide, as well as in China and South East Asia; Hanfeng's success in developing and introducing new products and services, constructing and operating new manufacturing facilities, expanding existing distribution channels, developing new distribution channels and realizing increased revenue from these channels. This list is not exhaustive of the factors that may affect any of Hanfeng's 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. Hanfeng undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made, or to reflect the occurrence of unanticipated events, whether as a result of new information, future events or results or for any other reason. Readers are cautioned not to put undue reliance on forward-looking statements. FOR FURTHER INFORMATION PLEASE CONTACT: Niral V. MerchantHanfeng Evergreen Inc.Chief Financial Officer+1 (416) 368-8588nmerchant@hanfengevergreen.comORInvestor RelationsKevin O'Connor+1 (416) 962-3300ko@spinnakercmi.com