Hanfeng Evergreen Inc.

Hanfeng Evergreen Inc.

August 06, 2008 21:20 ET

Hanfeng Reports Another Record Quarter Growth

- Record sales, net income and EPS in the second quarter of 2008 - EPS of $0.13 in the quarter, $0.24 for the six month period - Sales grow to $124 million in the first half of 2008 - New growth through joint ventures and distribution network on schedule for 2009

TORONTO, ONTARIO--(Marketwire - Aug. 6, 2008) - Hanfeng Evergreen Inc. ("Hanfeng" or the "Company") (TSX:HF) today announced record sales of $67.7 million for the quarter ended June 30, 2008 compared to $30.9 million in the same quarter of 2007, an increase of 119 percent. EBITDA from the second quarter of 2008 was $9.1 million, compared with $5.4 million in the same period in 2007. Net income was $7.8 million for the quarter compared to $4.7 million in 2007. Earnings per share ("EPS") were $0.13 for the second quarter of 2008 compared to $0.08 for the same period in 2007.

For the six months ended June 30, 2008, Hanfeng reported sales of $123.5 million compared to $55.0 million in the same period in 2007. EBITDA in the first half of 2008 was $17.6 million, compared with $9.6 million in the same period in 2007. Net income was $15.0 million for the six-month period ended June 30, 2008 compared with $7.9 million in the same period in 2007. EPS was $0.24 for the six-month period compared to $0.15 for the same period in 2007.

On a consecutive quarter comparison, Hanfeng's second quarter 2008 sales increased by 21 percent compared to the first quarter of 2008 ($67.7 million in the second quarter versus $55.8 million in the first quarter). EBITDA ($9.1 million in the second quarter versus $8.4 million in the first quarter) and net income ($7.8 million in the second quarter versus $7.1 million in the first quarter) also increased as sales continued to ramp up and new production capacity was utilized.

Hanfeng's annual design production capacity reached 700,000 tonnes per annum ("TPA") in the first quarter of 2008, double the level at the beginning of 2007. Historically, new plants require approximately 2 to 4 quarters to ramp up to their normal capacity level. Hanfeng's second quarter production totalled approximately 147,000 tonnes, up by 8 percent from the first quarter of 2008 and by 62 percent over the same period last year. For the six month period, production increased by 69 percent from the same period in 2007. Hanfeng sold approximately 142,500 tonnes of fertilizer in this quarter and 270,200 tonnes in the first half of 2008. At the end of the second quarter, there was approximately 3,100 tonnes of finished goods on hand.

Gross profit increased 77 percent in the second quarter and 98 percent in the first half of 2008 compared to the same periods in 2007. Gross profit as a percentage of sales decreased by 3.8 percent to 15.8 percent in the second quarter of 2008 compared with the same quarter of 2007, and by 3.5 percent on a consecutive quarter basis, mainly due to the continuously rising raw material costs since the summer of 2007. Hanfeng's China domestic selling price increased by 35.5 percent in the second quarter of 2008 compared with the same period a year ago, and by 6.5 percent on a consecutive basis. Along with the sales volume increase in every quarter since the beginning of 2006, Hanfeng has been increasing its selling price to at least track the dollar value increases in our raw material costs. Consequently, the gross profit as a percentage of sales has decreased while total gross margin dollars are also increasing. In addition, the international sales (typically higher margin with lower volume) decreased in this quarter from the last quarter (17,000 tonnes versus 4,500 tonnes), as a result of the introduction of 100 percent additional export tax on all types of fertilizers by the Chinese government for the period between April 20 and September 30, 2008.

Operating expenses increased from $1.4 million in the second quarter of 2007 to $2.9 million this quarter and from $2.7 million in the first half of 2007 to $6.4 million, primarily due to the additional production capacity added during the year and increased freight charges related to the international sales mostly in the first quarter of 2008.

As at June 30, 2008, Hanfeng reported cash and cash equivalents of $34.4 million and working capital of $105 million versus $28.7 million and $91.1 million respectively at December 31, 2007. At June 30, 2008, long-term debt was nil and current liabilities was $6.2 million as Hanfeng paid off its working capital loans during the second quarter.

Operational and Business Highlights

- The China government approved a dedicated railway spur that will connect Hanfeng's Heilongjiang facility (currently 450,000 TPA design capacity) directly with the national railway along the border with Russia. With $4.1 million (RMB 28 million) commitment to the construction, Hanfeng expects approximately $1.1 million annual saving in time and cost of shipping and handling. The construction is expected to be completed early in the third quarter of 2008 (initially scheduled for the fourth quarter).

- Hanfeng was selected to help the Chinese government set up national product standards for Urea Formaldehyde Slow Release Fertilizer (UF) and related UF Products. National standards are the tool used by the Chinese government to discipline the market and protect farmers from inferior or unsafe products. The first time Hanfeng helped the Chinese government set national standards was in 2007 for sulfur coated urea (SCU) and related products.

- Hanfeng secured a three-year potash supply with a distributor who has one of the 25 import licenses in China to import directly from JCS Silvinit, one of the two largest Russian potash producers. The contract initiated in July 2008 with 100,000 tonnes in the first year, and allows for 50,000 tonne annual increases each year through July 2011. The 100,000 tonne supply will satisfy most of Hanfeng's current slow release NPK production requirement.

- Hanfeng's first 50/50 joint venture project started commercial operations in July 2008. The SCU facility is located in Shanxi province and was constructed next to Shanxi Fengxi Fertilizer Industry (Group) Ltd.'s (Fengxi) 700,000 TPA urea production facility. The project was completed on time and within budget. With the new production, Hanfeng's effective annual designed capacity is 725,000 tonnes.

- Hanfeng completed a 50/50 joint venture agreement in July2008 with Shandong Mingshui Great Chemical Group ("Minghua") to construct a 100,000 TPA polymer coated urea (PCU) production plant on the same site as Minghua's 600,000 TPA urea facility in Shandong province, the largest agricultural province in China. This production will utilize Hanfeng's patented technology and provide significant product support to the Company's distribution network in this region. The budget for this project is estimated at $8.9 million (RMB 60 million) and is expected to be completed in April 2009.

- Hanfeng entered into a letter of intent with two top 10 companies in Indonesia to construct and build a 200,000 TPA slow release NPK production facility in Surabaya, Indonesia in order to meet the local oil palm and tobacco growing needs. One of the partners, PT. Matahari Kahuripan Indonesia (the Makin Group) has 1.7 million hectare of plantation on its own and plans to increase it to 3 million hectare by 2015. The other joint venture partner, PT. Sumber Agrindo Sejahtera is the largest agriculture distributor in this region. The Makin Group will consume approximately 80 percent of the production. A detailed feasibility study for the project is currently underway. The preliminary estimated budget for this project is $30 million, with Hanfeng's joint venture interest equal to 34 percent. Construction is expected to be completed in September 2009.

- Hanfeng has established sales offices in 5 key regions of China, including Harbin (for Heilongjiang, Jilin and Liaoning provinces in the Northeast of China), Xi'an (Shannxi province), Beijing, Weifang (Shandong province) and Huizhou (Guangdong province). The Company is currently selecting county level retailers around these regions as well as identifying conventional fertilizer producers with blending capabilities. The total fertilizer demand in these five regions is estimated at 40 million tonnes annually. Hanfeng plan to roll out its distribution network starting in the spring season of 2009.

"Hanfeng's exceptional performance for the first half of 2008 demonstrates our ability to profitably expand our operations," stated Xinduo Yu, President and CEO of Hanfeng. "In addition to the organic growth in our existing production base, we successfully completed and put into commercial operations our first joint venture project in China, entered into two new joint ventures that will expand our reach in China and internationally, secured stable, low cost sources for raw materials, and began to build the framework for our distribution network. These milestones provide Hanfeng the vertical structure to begin to maximize our current operations and prepare us for our next phase of growth."

Summary Financial Results
For the 6 months For the 3 months
ended June 30 ended June 30
(in thousands of $Cdn
except per share data) 2008 2007 Change 2008 2007 Change
Sales 125,530 55,046 124% 67,735 30,877 119%
Gross profit 21,466 10,821 98% 10,722 6,063 76%
Net earnings 14,892 7,917 88% 7,820 4,694 67%
Basic EPS 0.24 0.15 0.09 0.13 0.08 0.05
Diluted EPS 0.24 0.15 0.09 0.13 0.08 0.05
Weighted average number
of shares
(in millions of shares)
Basic 61.4 53.4 15% 61.4 58.7 5%
Fully Diluted 61.8 54 14% 61.9 59.2 5%

Balance Sheet Highlights
(In thousand except for ratios) June 30, 2008 December 31, 2007
Current ratio (i) 17.8 : 1 3.8 : 1
Cash & cash equivalents 34,372 28,690
Working capital 105,362 91,089
Total assets 210,895 207,641
Total debt 6,276 32,793
Loans payable - 26,383
Total equity 204,619 174,848
Debt / Equity (ii) 3% 19%
(i) Current ratio equals Current Assets / Current
(ii) Debt to Equity equals Total Debt / Total Equity


While China conventional fertilizer prices continue to rise despite of the government's price control programs, Hanfeng has been taking advantage of its various leading slow release technologies and offering Chinese farmers the lowest cost fertilizers (in terms of crop output tonnage). Hanfeng products not only provide the opportunity for higher income to farmers, but also a long-term solution to some of China's more urgent issues, including improving crop yields, reducing the environmental damage caused by conventional fertilizers, and energy conservation. China has provided strong support including directives in its 11th Five Year Plan to further the study of slow release technology, provide tax incentives to advanced technology producers, and establish education programs and field trials for farmers.

Hanfeng continues to improve on its current operations in China, such as securing key raw material supplies, improving logistics, and expanding its product portfolio to respond to the increasing demand for its products. To expand its production and brand equity, Hanfeng continues to execute on its joint venture model, which is to partner with top urea producers in key regions and construct slow release fertilizer plants on the joint venture partner's site. Hanfeng is also on track to establish its distribution network in five key regions of China, which collectively account for close to one third of the country's fertilizer demand. By blending its slow release fertilizers with the local conventional fertilizers, Hanfeng will be able to offer its fertilizers to farmers throughout China. With integrated production and distribution throughout China, Hanfeng will significantly increase its market penetration.

In addition to its expansion in China, Hanfeng's reputation for quality and product development capabilities continue to attract interest from international companies in markets with growing demand for slow release fertilizers. Hanfeng is currently completing the feasibility study and agreement for its first international joint venture in Indonesia. The proposed 200,000 TPA NPK project is expected to be completed in September 2009.

Conference call information:

Hanfeng Evergreen Inc. will host a conference call to discuss its second quarter 2008 financial results. Ms. Madeline Yu, CFO and Robert Beutel, Chairman of the Board, will host the call.

Management invites analysts and investors to participate on the conference call:

Date: Thursday, August 7, 2008
Time: 10:00 am Eastern
Dial In Number: 416-641-6136 or 1-866-299-8690
Taped Replay: 416-695-5800 or 1-800-408-3053
(available for 7 days)
Taped Replay Passcode: 3267802

Live webcast link: http://events.onlinebroadcasting.com/hanfeng/080708/index.php

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.

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