Press release from Marketwire
Hanfeng Evergreen Announces Third Quarter 2013 Financial Results
Wednesday, May 15, 2013
Hanfeng Evergreen Announces Third Quarter 2013 Financial Results22:30 EDT Wednesday, May 15, 2013
TORONTO, ONTARIO--(Marketwired - May 15, 2013) - 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 nine-month periods of fiscal 2013 ended March 31, 2013. All amounts are in Canadian dollars unless otherwise noted.
Current Status of Privatization Proposal
As previously announced, on March 15, 2013, Hanfeng received the requisite shareholder approvals for the plan of arrangement pursuant to which Mr. Yu, through his wholly-owned corporation (the "Purchaser"), agreed to acquire all of the outstanding common shares of Hanfeng not already owned by Mr. Yu for all-cash consideration of CDN$2.25 per share.
On May 3, 2013, the Company agreed to a further extension of the closing date to not later than July 3, 2013 for completion of the privatization transaction. The extension may expire earlier than July 3, 2013 if certain milestones have not been achieved by May 15, 2013 and June 6, 2013, respectively. This further extension is intended to provide the Purchaser with further time to arrange the required financing to complete the privatization transaction. As of May 15, 2013, the extension remains in full force and effect. The completion of the privatization transaction is dependent on the Purchaser arranging the necessary financing, which is outside the control of the Company. The Company cannot provide any assurance that the necessary financing can be arranged, or that the going private transaction will be completed. However, the Company has granted the further extension to enable the Purchaser to arrange sufficient funding to consummate the transaction.
Sales were $55.8 million in the third quarter of fiscal 2013 ("Q3FY13") versus $98.8 million in third quarter of fiscal 2012 ("Q3FY12"). The decrease in sales is due primarily to reduced sales in China as a result of a lack of a large order from the Company's largest customer, coupled with production issues relating to excessive snowfall during the 2012/2013 winter season, offset by a small increase in sales in Indonesia (after taking into account sales returns of non-compliant product as reported in the second quarter fiscal 2013 results). Sales were also negatively impacted during Q3FY13 at Hanampi due to lower market prices for crude palm oil in Indonesia, resulting in a deferral of purchases by palm oil producers.
Gross profit decreased during Q3FY13 to $11.7 million from $14.3 million in Q3FY12 predominantly due to reduced revenue from decreased sales in China, as described above. Gross margin as a percentage of revenue was higher for Q3FY13 at 21.0%, as compared to Q3FY12 at 14.5% due primarily to the net reversal of impairment related to inventory in the amount of $5.0 million, offset by the net increase of impairment related to advances to customers of $0.6 million. Without this net reversal of impairment, gross margin would have been 13%, and would be relatively consistent with margins in China generated in the second quarter of fiscal 2013.
Adjusted EBITDA was $3.7 million in Q3FY13 versus $12.3 million in the same period last year. Net income for Q3FY13 was $7.6 million compared to $8.4 million during Q3FY12. Basic and diluted income per share ("IPS") was $0.13for the third quarter of fiscal 2013 versus $0.14 in the same period in fiscal 2012. On a Non-IFRS basis, IPS was $0.20 in Q3FY13 versus $0.14 in Q3FY12.
For the nine-month period ended March 31, 2013, the Company reported revenue of $106.7 million versus $156.3 million during the same period last year. The decrease in sales is due primarily to reduced sales in China as noted above, as well as reduced sales from the previously disposed Shandong and Shanxi joint ventures, offset by a small increase in sales in Indonesia.
Gross profit decreased during the nine month period to a loss of $20.1 million versus $22.9 million in gross profit in the same nine month period last year primarily as a result of the impairment on inventory and advances to suppliers in Q3FY13, and the decreased sales from the previously disposed Shandong and Shanxi joint ventures. Gross margin percentage was lower in the nine month period of fiscal 2012 at negative 18.9%, as compared to 14.6% in the comparative period last year. Gross margin as a percentage of sales were lower in China and Indonesia, and were further reduced as a result the impairment of inventory of $26.0 million and of advances to suppliers of $9.6 million being included as part of cost of goods sold during Q3FY13 (where the net realizable value was estimated to be lower than the cost), plus reduced production levels, where fixed overheads are spread over lower production volumes, resulting in reduced margins. Gross margins in Indonesia were lower due to the impact of sales returns from the non-compliant product issue in the second quarter of fiscal 2013.
Net loss for the nine month period of fiscal 2013 was $113.9 million compared to a profit of $9.3 million during the comparative period last year. The main reasons for the decreased net income resulted from impairment charges recorded in the second quarter of fiscal 2013 in property and equipment and the impairment of inventory and advances to suppliers, as described above.
Adjusted EBITDA was $5.5 million for the nine month period in fiscal 2013 versus to $17.3 million in the same period last year.
Basic and diluted IPS was $(1.89) for the nine month period in fiscal 2013 versus $0.15 in the same period last year. On a Non-IFRS basis, IPS was $0.01 in the nine month period in fiscal 2013 versus $0.16 in the comparative period last year.
Cash was $40.2 million as at March 31, 2012, compared to $81.3 million as at June 30, 2012. Cash decreased as a result of the negative cash flow from operating activities, a net increase in non-cash working capital assets including inventory and advances to suppliers, as well as the injection of USD $8.2 million into the Indonesian Joint Venture by the Company.
Total inventory and advances to suppliers increased to $149.2 million as at March 31, 2013 compared to $87.2 million as at June 30, 2012. The increase is mainly due to increased purchases of raw materials in China during the 2013 fiscal year and sales returns of product in Indonesia, which were added back to inventory, offset by an impairment to inventory and advances to suppliers based on the net realizable value being estimated to be lower than cost.
Hanfeng'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 the largest producer 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.
Adjusted EBITDA: Adjusted earnings before interest, taxes, depreciation, and amortization ("Adjusted 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 Adjusted EBITDA by adding (1) net income/(loss), (2) interest expense reported on the income statements (or deducting interest income), (3) depreciation and amortization expense reported as part of cost of goods sold, (4) depreciation and amortization expense reported as part of general and administrative expenses, (5) income tax expense (recovery), (6) impairment and disposition of long-lived assets and impairment of working capital items, where the net realizable value is lower than the cost, and (7) foreign exchange loss (gain). Adjusted EBITDA does not have a standard meaning prescribed under IFRS and is therefore unlikely to be comparable to similar measures presented by other companies.
Non-IFRS income per share ("IPS") is calculated by adding back non-cash impairment of assets and loss on disposition to basic IPS.
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; the outcome of the privatization transaction; the outcome of shareholder disputes in the Indonesian joint venture; supply or purchases of non-compliant products; 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:
Hanfeng Evergreen Inc.
Niral V. Merchant
Chief Financial Officer
+1 (416) 368-8588
Spinnaker Capital Markets Inc.
+1 (416) 962-3300