Hanfeng Evergreen Inc.
TSX : HF

Hanfeng Evergreen Inc.

November 12, 2009 17:13 ET

Hanfeng Announces First Quarter Fiscal 2010 Financial Results

Strong results despite challenging environment and planned maintenance shut downs.

Market recovering as gross profit on a per ton basis stabilizing.

TORONTO, ONTARIO--(Marketwire - Nov. 12, 2009) - Hanfeng Evergreen Inc. ("Hanfeng" or the "Company") (TSX:HF) today reported its financial results for the first quarter of fiscal 2010 ended September 30, 2009. All amounts are in Canadian dollars unless otherwise noted. Hanfeng recently changed its year end to June 30th,as a result, the comparative figures presented are for the period July 1, 2008 to September 30, 2008 ("Q3 2008").

Summary Financial Results

(in thousands in $Cdn) except percentages and per share data) 
Q1 2010Q3 2008
Sales$55,100$68,141
Gross profit8,81110,035
EBITDA(1)8,1579,586
Net Income6,1028,189
 Basic EPS0.100.13
 Diluted EPS0.100.13

(1) 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 reported on the income statements (or deducting interest income), (3) depreciation expense reported as part of cost of goods sold on the income statements, (4) depreciation expense reported as a line item on the income statements, and (5) income tax expense reported on the income statements. This might not be the same definition used by other companies.

Sales were $55.1 million in the first quarter ended September 30, 2009, compared to $68.1 million in the comparable period in 2008. EBITDA in the first quarter of 2010 was $8.2 million, compared to $9.6 million in the comparable period in 2008. Net income was $6.1 million for the quarter compared to $8.2 million in Q3 2008. Earnings per share ("EPS") was $0.10 for the first quarter compared to $0.13 for the Q3 2008 period. 

In the quarter, Hanfeng's average selling price decreased by 23 percent to approximately RMB 2,793 per metric ton (MT), compared to RMB 3,615 per MT in Q3 2008. The reduction is a result of a decrease in raw material costs during the same period. Particularly, in the first quarter of 2010, the average price of urea, phosphate, and potash decreased 16 percent, 41 percent, and 26 percent respectively, compared to the third quarter of 2008. Urea, phosphate and potash (conventional fertilizers) 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. More recently, Hanfeng's average selling price of RMB 2,793 decreased 3.6 percent compared to RMB 2,899 per MT in Q2 2009 signifying a stabilization in the marketplace. 

The actual production volume in the first quarter of 2010 decreased by approximately 12,000 tonnes (or 9 percent), compared with the same quarter in 2008 due to scheduled maintenance during this quarter and offset by new production volume from the new joint venture facility in the Shandong province. For the first time since it began commercial operations, the Heilongjiang facility shut down for approximately three weeks to undergo regular annual maintenance. In general terms and depending on the production environment, new facilities do not require an annual maintenance shut down period for the first few years of operation. However over a period of time, on-going maintenance is not sufficient to replace an annual maintenance shut down period. The Jiangsu facility was shutdown for regular maintenance during the quarter as well. Finished goods on hand at the end of the first quarter of 2010 were 10,320 metric tonnes, consistent with the inventory level of 8,900 tonnes as at September 30, 2008. As a result of the reduced production volume, sales volume in the first quarter of 2010 slightly decreased to 122,805 tonnes from 124,872 tonnes sold in the same quarter of 2008.

Gross profit in the first quarter of fiscal 2010 decreased to $8.8 million, a 12 percent decrease compared to the $10.0 million achieved in the third quarter of 2008. Gross profit in RMB decreased by 17 percent, which is the result of decreased sales in RMB by 24 percent, partially offset by the improved gross margin percentage (16.0 percent for the first quarter of 2010 vs. 14.7 percent for the third quarter of 2008).

Gross profit on a per metric ton basis in the first quarter of 2010 was RMB 447, compared with RMB 529 in the third quarter of 2008, a 16 percent decrease, due to the aforementioned market conditions. On a consecutive quarter comparison, gross profit per metric ton was consistent (RMB 447 vs. RMB 458). Gross profit on a per metric ton basis is expected to return to more historical levels as the market stabilizes.

Throughout the first quarter, the average foreign exchange rate for the Chinese Renminbi (RMB) was approximately 6.22 compared to 6.62 in the Q3 2008 period. Although Hanfeng earns almost all of its revenue and pays all of its suppliers in RMB, it reports its financial results in Canadian dollars and the appreciation of the RMB has a positive impact on reported revenues. 

As at September 30, 2009, Hanfeng reported cash and cash equivalents of $56.8 million and net working capital of $145.7 million. As at September 30, 2010, Hanfeng had no long-term debt and bank debt of nil. In addition, Hanfeng has undrawn lines of credit in China totaling RMB730 million (CAD $114.6 million).

Liquidity and Capital Resources

In thousands of Canadian dollars except for ratiosSeptember 30, 2009June 30, 2009
Current ratio (1)13.6:14.4 : 1
Cash & cash equivalents56,80192,342
Working capital145,732148,786
Total assets271,664317,266
Total debt (2)-39,146
Total equity260,108273,777
Total debt / Total equityn/a14%

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

  • The Company entered into an exclusive distribution agreement with FBSciences Inc. to distribute CarbonPower® in China. The term of the agreement is for 2 years with a right of first refusal. Through its' organic compounds, CarbonPower® provides a high level of mobility to nutrients within the plant. Some of the benefits include speeding up the absorption of naturally occurring or applied nutrients through roots or foliage, promoting vigorous root growth and greater moisture utilization, enhancing growth, resulting in faster emergence, earlier growth and uniform maturity, improving chlorophyll density to boost photosynthesis and delivery of more nutrients to reproductive tissues and fruiting bodies. Hanfeng field tested CarbonPower® during fiscal 2009 in a number of provinces with encouraging results. Hanfeng applies CarbonPower® to conventional fertilizer thereby improving its effectiveness. The first commercialization of this product occurred in the second quarter of 2009 when 100,000 tonnes of coated urea was sold.
  • Hanfeng is pleased to report that the initial 100,000 MTPA joint venture ("JV") facility in Shandong Province with Shandong Mingshui Great Chemical Group ("Mingshui") began commercial operations in July 2009. Construction of the announced 100,000 MTPA expansion began in August 2009 and is scheduled for completion in September of 2010. To further expand production at the JV facilities, Hanfeng and Mingshui entered into an agreement to merge Mingshui's existing 40,000 MTPA sulfur coated plant with the newly constructed JV facility. When completed, the Shandong Mingshui JV facility will have design capacity of 240,000 MTPA. The Shandong province is a key market for Hanfeng products and consumes approximately 15 million MTPA of fertilizers annually, the largest of any province in China.
  • In August 2009, Hanfeng was selected by the Standardization Administration of the People's Republic of China to establish the National Compulsory Standard for sulphur coated urea ("SCU"), as well as the standards for blended fertilizers where SCU is used. Hanfeng will team with the National Quality Supervision and Test Center of Chemical Fertilizer (National Quality) to further refine and improve the specifications and provisions provided in the Chemical Industry Standard for SCU, which Hanfeng and the National Quality Center established previously, to form the national standard to be enforced nation-wide, no later than 2011. The SCU National Compulsory Standard will control technical specifications including the amount of nitrogen and sulfur contained in SCU, as well as the dissolution criteria for its slow-release characteristics. The application and enforcement of the new standard is expected to improve the quality of the SCU market in China, and further enhance Hanfeng's first mover advantage
  • Hanfeng's annual design production capacity increased to 762,500 MT as at September 30, 2009.

Mr. Paul Begin, CFO and Mr. Robert Beutel, Chairman of the Board, will host the call. Management invites analysts and investors to participate on the conference call.

Date:Friday, November 13, 2009
  
Time:11:00 am, Eastern Time
  
Dial in Number:416-340-8061 or 1-866-225-0198
  
Taped Replay:416-695-5800 or 1-800-408-3053
  
Taped Replay Pass Code:8508185
  
Webcast Presentation Link:http://events.digitalmedia.telus.com/hanfeng/111309/index.php

Hanfeng's First quarter 2010 financial statements and MD&A have been filed and will be available at www.sedar.com.

About 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. www.hanfengevergreen.com

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.

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