Hanfeng Evergreen Inc.

Hanfeng Evergreen Inc.

November 07, 2007 18:57 ET

Hanfeng Reports Third Quarter and Nine Month Results

TORONTO, ONTARIO--(Marketwire - Nov. 7, 2007) - Hanfeng Evergreen Inc. ("Hanfeng" or the "Company") (TSX:HF) today announced sales of $31.6 million for the quarter ended September 30, 2007 compared to $20.7 million in the same quarter of 2006. EBITDA from continuing operations in the third quarter of 2007 was $4.8 million, compared with $3.5 million in the same period in 2006. Net income from continuing operations was $4.7 million for the quarter compared to $2.5 million in 2006. Earnings per share ("EPS") from continuing operations were $0.08 for the third quarter of 2007 compared to $0.05 in the same period in 2006.

For the nine months ended September 30, 2007, Hanfeng reported sales of $86.7 million compared to $35.5 million in the same period in 2006. EBITDA from continuing operations in the first nine months of 2007 was $14.3 million, compared with $5.4 million in the same period in 2006. Net income from continuing operations was $12.6 million for the nine month period ended September 30, 2007 compared with $3.6 million in 2006. Earnings per share ("EPS") from continuing operations were $0.23 ($0.22 fully diluted) for the nine month period compared to $0.08 ($0.08 fully diluted) for the same period in 2006. Net income and EPS including discontinued operations was $4.3 million and $0.10 respectively in the nine month period of 2006. The EPS increases in the quarter and the first nine months of 2007 are after consideration of the dilution from the April share issuance to Agrium Advanced Technologies ("Agrium") and PetroChina Ningxia Petrochemical Company ("PetroChina"). Total shares issued in mid-April were 12.9 million shares, representing dilution of 29% this quarter and 21% year-to-date.

While EDITDA and net income grew substantially in the three and nine month periods in 2007, both were affected by lower margins in the third quarter. Gross margin as a percentage of sales was 17.3% in the third quarter of 2007 versus 18.7% in the same period in 2006, primarily due to raw material price increases. Similar to the world market, China has been experiencing price increases in conventional fertilizers as a result of increased demand. In the long term, Hanfeng will benefit from increases in conventional fertilizer cost as slow and controlled release products demonstrate greater efficiency and increased economic benefit. However, in the short term, Hanfeng will experience some lag time as the market adjusts. For the nine month period, Hanfeng's gross margin as a percentage of sales was 18.8% versus 19.8% in the same period in 2006.

Production from all facilities in the first nine months of 2007 exceeded 260,000 tonnes versus approximately 103,000 tonnes in the same period of 2006. Although Hanfeng has been successful in steadily increasing its production base, production at the Jiangsu tower granulation plant (with an annual designed capacity of 100,000 tonnes) was constrained in the third quarter due to extremely hot weather conditions in July and August. The tower was shut-down for a majority of the quarter as high temperatures impeded the cooling process required to properly convert the fertilizer to solid form and meet Hanfeng's rigid quality control requirements. During the shut-down, Hanfeng performed regular maintenance on the tower, as well as modified the plant in order to expand its product offering to the urban greening market. The plant resumed commercial production at the end of the quarter and has been operating at full capacity.

As at September 30, 2007, Hanfeng reported cash, cash equivalents, and term deposits of $56.4 million and working capital of $83.7 million versus $2.1 million and $10.9 million respectively at December 31, 2006. At September 30, 2007, long term debt was $nil and current bank debt was $9.3 million versus long term debt of $4.9 million and current bank debt of $13.5 million at December 31, 2006.

Business Highlights

- In September 2007, China's National Products Standard Committee approved Hanfeng's SCU product specifications to be the National Chemical Industry Standards. This has significantly elevated Hanfeng's brand image and industry status in the country.

- Hanfeng entered into a joint venture agreement in August 2007 in Shanxi province with Fengxi Fertilizer Company, a major gas-based urea producer and one of the top 10 urea producers of the country. The initial 50,000 tonnes per annum SCU plant can be expanded after successful commissioning and operations. This is the first joint venture that Hanfeng materialized under its geographical expansion strategy in China. Hanfeng has also revised its construction schedule for the project due to delays in obtaining the JV business license. The Company now expects to complete the initial phase in July 2008 instead of April as originally anticipated. Changes and revisions to the approval process adopted by the Chinese government in 2007 have caused the delay.

- During the quarter, Hanfeng began commercial operations at the 200,000 tonnes per annum Prill Tower NPK plant at its Heilongjiang facility. The plant utilizes Hanfeng's own proprietary Urea Formaldehyde / Methylene Urea ("UF/MU") technology to produce NPK products which can be customized using various nitrogen sources to fit customer requirements. With the addition of this plant, Hanfeng's total annual designed fertilizer production capacity increased to 600,000 tonnes.

- Hanfeng completed construction and began commissioning of the first 50,000 tonnes of a sulfur coated compound fertilizer plant at the Heilongjiang facility in October 2007. Hanfeng expects to reach 700,000 tonnes of annual design capacity from its wholly-owned facilities in the first half of 2008 with the completion of its 50,000 tonne resin coated compound fertilizer plant in Heilongjiang.


Summary Financial Results
For the 9 months For the 3 months
ended Sept 30 ended Sept 30
(in thousands of $Cdn
except per share data) 2007 2006 change 2007 2006 Change
Sales 86,688 35,546 144% 31,642 20,668 53%
Gross profit 16,307 7,043 132% 5,486 3,862 42%
Net income before
operations 12,643 3,634 248% 4,725 2,451 93%
Net income from
operations - 708 - -
Net earnings 12,643 4,342 191% 4,725 2,451 93%

From continuing
Basic EPS 0.23 0.08 0.08 0.05
Diluted EPS 0.22 0.08 0.08 0.05
After discontinued
Basic EPS 0.23 0.10 0.08 0.05
Diluted EPS 0.22 0.10 0.08 0.05
Weighted average number
of shares (in
millions of shares)
Basic 56.1 46.1 22% 61.2 47.8 28%
Fully Diluted 56.6 46.9 21% 61.8 48.0 29%
Note a: discontinued operations include nursery and landscaping businesses
that were discontinued in 2005 and 2006 respectively. Comparative
statements have been reclassified to present these businesses as
discontinued operations.

Balance Sheet Highlights

(In thousands of $Cdn except for
ratios) September 30, 2007 December 31, 2006
Current ratio (i) 7.6 : 1 1.6 : 1
Cash and Cash equivalent 46,380 2,104
Working capital 83,749 10,936
Total assets 177,965 108,072
Total debt 12,609 22,943
Loans payable (current portion) 9,289 13,492
Total equity 165,356 85,129
Debt / Equity (i)(i) 7.6% 27%
(i) Current ratio equals Current Assets / Current Liabilities
(i)(i) Debt to Equity equals Total Debt / Total Equity

Compared with the 2006 year-end, current assets increased by approximately $67.4 million to $96.4 million as at September 30, 2007. The increase was due to several factors including a $44.3 million increase in cash and cash equivalents, a $9.7 million increase in term deposit, a $12.4 million increase in prepaid inventories, and a $1.6 million increase in inventory, offset by a $0.5 million decrease in receivables. The increase in term deposit and cash and cash equivalents was primarily due to $74.4 million raised by subscription agreements from Agrium in April this year. The increases in prepaid inventory and inventory were primarily due to more raw material purchases in anticipation of price increases. The slight decrease in receivables was the result of collections from major accounts prior to the end of the current quarter.

Current liabilities decreased at the end of the current quarter to $12.6 million versus $18.1 million as at December 31, 2006. The decrease is attributable to the repayment of all loans with excess cash on hand, offset by withdrawal of a working capital loan at the end of September. The Company had no long term debt as at the end of the quarter.

Hanfeng Evergreen Inc. will host a conference call to discuss its third quarter 2007 financial results. Ms. Madeline Yu, CFO and Robert Beutel, Chairman of the Board, will host the call.

Date: Thursday, November 8, 2007
Time: 10:00 am Eastern
Dial In Number: 416-641-6136 or 1-866-299-8690
Taped Replay: 695-5800 or 1-800-408-3053 (available for 7 days)
Taped Replay Pass code: 3240871

Live webcast link:

About Hanfeng Evergreen Inc.

Hanfeng is the largest producer of slow and controlled release fertilizers marketing China. Hanfeng was the first to introduce the concept of slow and controlled release fertilizers into China's agriculture market with its establishment of the first commercial scale slow-release fertilizer 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.

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