Migao Corporation
TSX : MGO

Migao Corporation

November 12, 2009 07:15 ET

Migao Reports Fiscal 2010 Second Quarter Financial Results

- $68 million quarterly revenues -

- $9.6 million net profit -

TORONTO, ONTARIO--(Marketwire - Nov. 12, 2009) - Migao Corporation (TSX:MGO), a China-based leading specialty potash fertilizer producer, today reported quarterly sales of $67.7 million for the three-month period ended September 30, 2009 and net income of $9.6 million for the quarter compared to revenue of $78.1 million and net earnings of $12.9 million in the quarter ended September 30, 2008. The Company earned $0.21 per basic share outstanding for the quarter, compared to $0.32 per share in the quarter ended September 30, 2008.

Revenue for the first half of fiscal 2010 was $126.6 million, which is on par with $127.8 million in revenue for the similar six-month period last year. Net income for the six-month period ended September 20, 2009 was $19.2 million or $0.41 per basic share as compared to $19.6 million or $0.46 for the same six-month period last year.

Gross profit for the quarter was $14.3 million or 21.2% of revenue. For the first half of fiscal 2010, gross margin is in line with management's expectations for the fiscal year at 22.9% or $29 million.

Production for the quarter was at 100% of core capacity or approximately 80,000 tonnes. Maintenance performed during the previous quarter was concluded and production ramped up to full capacity. During the quarter, the Company announced sales orders for 75,000 tonnes of combined potassium sulphate and potassium nitrate, indicating full production will continue for the balance of the calendar year. The Company also distributed, after rudimentary processing, approximately 20,000 tonnes of non-core potassium sulphate during the quarter.

Impacting the financial performance in the quarter was slightly lower selling prices versus the previous period ended June 30, 2009 as well as relatively stronger Canadian dollar. The lower selling prices are a result of reduced input costs, weighted heavily towards potassium chloride.

Income tax expense of $1.2 million occurred during the quarter representing approximately 12% of revenue. EBITDA for the second quarter of fiscal 2010 was $12.2 million or 18.1% of revenue. The Company is benefiting from grandfathered favourable tax policies, which would otherwise result in a corporate tax rate of 25%, not including any other, or new favourable tax treatments.

"We are pleased to see more stable conditions in the fertilizer sector in China after a very volatile and uncertain first half of calendar 2009," said Mr. Liu Guocai, President and CEO of Migao. "Our strategy of providing the highest quality products to high-value crop customers such as tobacco, fruits and vegetables has enabled Migao to perform at industry leading levels in terms of production levels and profit margin during the recent difficult economic conditions. We will continue growing this business as we also explore other opportunities to leverage our strengths. These opportunities include addressing other high-value crops such as cotton and horticultural flowers. These opportunities will not be limited to China as we are also looking at markets outside of China, in nearby Southeast Asia."

As at September 30, 2009, Migao reported cash of $36.2 million and working capital of $136.6 million. Receivables and inventory make up the vast majority of working capital. Accounts receivables balance improved to $20.4 million in the quarter as compared to $61.0 million in the previous quarter ended June 30, 2009. Accounts receivable improved as a result of the Company discontinuing a credit program instituted last quarter as a temporary measure during a time of uncertainty with potash pricing. Long-term debt was nil and current bank debt was $42 million. As a result of longstanding, successful credit relationships between Migao and some of China's leading banks, the Company has been offered and is in the process of establishing working capital lines of credit with a China-based bank of approximately RMB 260 million and project financing lines of credit of approximately RMB 136 million.

Average inventory cost of raw potash for the period was $476 per tonne, a decrease in value of nearly $100 per tonne from the previous period's level of $570, reflecting declining raw material purchase costs for the Company's primary input - potassium chloride. Migao made prepayments of $90 million for raw materials during the quarter. This substantial increase in prepayments for raw materials was a result of the company locking in potash pricing and supply during a period of potash pricing volatility.

SUMMARY FINANCIAL STATEMENTS 
   
 3 months ended September 30, 20093 months ended September 30, 2008
   
($'000)  
Sales67,68478,161
Gross Profit 14,34919,104
Net Income9,59812,871
EBITDA12,26214,967
Basic EPS0.210.32
Diluted EPS0.200.31
   
Weighted average number of shares (in millions of shares)  
Basic46.540.8
Diluted46.941.9
   
   
Balance Sheet Highlights  
($'000)  
 September 30, 2009March 31, 2009
   
   
Current ratio3.10:15.40:1
Cash36.241.7
Working Capital136.3146.2
Total assets289.9275.2
Debt to Equity Ratio0.29:10.14:1
   

Complete financial statements are available through the SEDAR website www.sedar.com.

Conference Call
Migao will be hosting a conference call to discuss the first quarter results at 10:00am Thursday November 12, 2009. The details are as follows:
Dial in number: 416-340-2218 or 1-866-226-1793
Taped replay (until November 26, 2009): 416-695-5800 or 1-800-408-3053
Taped replay access code: 4067438#

About Migao
Migao Corporation, through its wholly owned subsidiaries, owns and operates fertilizer production plants in various strategic locations across China for the production and sale of specialty potash fertilizer (potassium nitrate and potassium sulphate) to China's agricultural market. Migao Corporation is subject to, and complies with strict government regulations that govern safety, quality and environmental protection. Migao's Sichuan facility is ISO 14001 certified, an international environmental management standard. Please visit www.migaocorp.com for further information.

Caution Regarding Forward-Looking Statements
This news release may include forward-looking statements within the meaning of certain securities laws, including the "safe harbour" provisions of the Securities Act (Ontario) and other provincial securities laws in Canada. These forward-looking statements include, among others, statements with respect to our objectives and goals, and strategies to achieve those objectives and goals, as well as statements with respect to our beliefs, plans, objectives, expectations, anticipations, estimates and intentions.

By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, which give rise to the possibility that predictions, forecasts, projections and other forward-looking statements will not be achieved. Certain material factors or assumptions are applied in making forward-looking statements and actual results may differ materially from those expressed or implied in such statements. We caution readers not to place undue reliance on these statements as a number of important factors, many of which are beyond our control, could cause actual results to differ materially from the beliefs, plans, objectives, expectations, anticipations, estimates and intentions expressed in such forward-looking statements. These factors include, but are not limited to: risks related to raw materials; execution of the business plan; dependence on key personnel; key relationships; dependence on key customers; dependence on key suppliers; competition; market factors and volatility of commodity prices; environmental risks and hazards; operating risks; proprietary rights; infrastructure; future capital requirements; technical substitution; exchange rate fluctuation; insurance; foreign operations; weather conditions and natural disasters; control by management; seasonality; dividends; conflicts of interest; state ownership; government sector intervention; foreign investment; repatriation of profit and currency conversion; tax; shareholders' rights and enforcement of judgements; developing legal system; protection of intellectual property rights; permits and business licenses; appropriation; and availability of land. Should one or more of these factors materialize, or should our estimates or underlying assumptions prove incorrect, actual results, performance or achievements may vary materially from those described in forward-looking statements.

We caution that the foregoing list of important factors that may affect our future results is not exhaustive. When reviewing our forward-looking statements, readers should carefully consider the foregoing factors and other uncertainties and potential events. Additional information about factors that may cause actual results to differ materially from expectations, and about material factors or assumptions applied in making forward-looking statements, may be found under the "Risk Factors" sections in our Annual Information Form and annual MD&A and elsewhere in our filings with Canadian securities regulatory authorities. Except as required by Canadian securities laws, we do not undertake to update any forward-looking statements, whether written or oral, that may be made from time to time by us or on our behalf; such statements speak only as of the date made. We cannot assure readers that actual results will be consistent with these forward-looking statements, and the differences may be material. The forward-looking statements included herein are expressly qualified in their entirety by this cautionary language.

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