Hanfeng Evergreen Inc.

Hanfeng Evergreen Inc.

March 06, 2008 17:12 ET

Hanfeng Announces Record Financial Results for 2007

-Annual sales grow by 136% to $141 million- -EPS doubles to $0.34 per share-

TORONTO, ONTARIO--(Marketwire - March 6, 2008) - Hanfeng Evergreen Inc. ("Hanfeng" or the "Company") (TSX:HF) today reported its financial results for the fourth quarter and year ended December 31, 2007. All amounts are in Canadian dollars unless otherwise noted.

For the year ended December 31, 2007, Hanfeng reported significant growth in its revenues and net income from continuing operations. Revenue increased by $81.4 million to $141.3 million as the Company successfully grew its fertilizer production throughout the year. Net income for the year ended December 31, 2007 was $19.4 million versus net income of $7.9 million in the same period in 2006. Earnings per share ("EPS") for 2007 were $0.34, an increase of $0.17 compared to 2006. Net Income and EPS for 2006 include Hanfeng's nursery and landscaping business (discontinued operations), which was sold in 2006. Excluding discontinued operations, net income and EPS in 2006 was $7 million and $0.15 respectively.

"This was a year of great achievement for Hanfeng," stated Xinduo Yu, Hanfeng's CEO and President. "In every facet of our business, we met or exceeded our goals. Our design capacity grew by 86 percent, production by 130 percent and our sales by 136 percent while profitability doubled. More importantly, we saw demand continue to increase as we sold virtually everything we produced in 2007, even in the wake of price increases."

As at December 31, 2007, Hanfeng reported cash and cash equivalent of $28.7 million and working capital of $91 million versus $2.1 million and $10.9 million respectively in 2006. Total assets grew by almost $100 million to $208 million as the Company successfully added four new plants to its production base and significantly increased its raw material inventory and prepaid inventory to help mitigate the effects of rising materials prices. Total debt increased from $23 million in 2006 to $33 million in 2007.

Business Highlights:

- On April 4, 2007, Hanfeng announced it had entered into separate agreements with Agrium Advanced Technologies ("Agrium"), a business segment of Agrium Inc., and PetroChina Ningxia Petrochemical Company ("PetroChina"), a division of PetroChina Petrochemical Company, and issued 11,959,000 shares to Agrium and 1,000,000 shares to PetroChina, both at $6.22 per share for total proceeds of $80.6 million.

- In June 2007, 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. In October 2007, Hanfeng completed construction and began commissioning of the first 50,000 tonnes of a sulfur coated compound fertilizer plant at the Heilongjiang facility. The Company exited 2007 with 650,000 tonnes of annual design capacity, and added another 50,000 tonnes of capacity at Heilongjiang with the completion of its specialty coating plant in February 2008. In total, Hanfeng has successfully added 350,000 tonnes of annual design capacity since December 31, 2006, a 100 percent increase. All expansion projects were completed on schedule and on budget.

- 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 completed two joint venture agreements in China during the second half of 2007. The first was signed in September with Shanxi Fengxi Fertilizer Group Ltd. in the Shanxi province and the second was signed in November with Anhui Linquan Industry Chemical Co., Ltd. in the Anhui province. Both facilities will initially produce 50,000 tonnes per annum of sulfur coated urea (SCU) and are expected to be in commercial operations in the later part of 2008 and early 2009. The facilities can be expanded to accommodate market demand in the region. In addition to expanding Hanfeng's production and geographic presence, the joint venture agreements also guarantee Hanfeng a secure supply of low cost urea. The Company is currently in discussions with several other urea producers in China.

- In January 2008, the results of extensive field trials using Hanfeng's SCU were announced. The field trials were carried out in 20 provinces over a two-year period by Dr. Yuan Longping, who is internationally recognized as a leader in the development of hybrid rice. The field trials demonstrated that SCU, used in numerous regions, in varying soil conditions, and with various types of hybrid rice, generated higher crop yields while using less nitrogen. In many cases, the effectiveness of the fertilizer was increased by more than 50 percent and the nitrogen requirement reduced by as much as 30 percent. Moreover, the field trials proved that SCU eliminated the need for multiple fertilizations, reduced the incidence of disease, and enhanced the quality of the rice crop.

"In 2007, we successfully established a growing, profitable production base, further strengthened our brand and our reputation in the industry, and through the field trials, introduced our products into numerous new regional markets in China. We expect that the demand created in these new regions will accelerate our growth utilizing joint ventures, as well as create new opportunities to expand our production and distribution base," concluded Mr. Yu.

Balance Sheet Highlights
(In thousand except for ratios) December 31, 2007 December 31, 2006
Current ratio 3.8 : 1 1.6 :1
Cash 28,690 2,104
Working capital 91,089 10,936
Total assets 207,641 108,072
Total debt 32,793 22,943
Loans payable (current portion) 26,383 13,492
Total equity 174,848 85,129
Debt / Equity 19% 27%

Summary 2007 Financial Results
For the 3 For the 12
month period month period
ended December 31 ended December 31
(in thousands in $Cdn) 2007 2006 change 2007 2006(1) change

Sales 54,620 24,303 125% 141,308 59,849 136%
Gross profit 10,545 5,102 107% 26,852 12,145 121%
Net earnings before
discontinued operation 6,793 3,439 98% 19,435 7,072 175%
Net earnings of
discontinued operation - 120 - - 829 -
Net earnings 6,793 3,559 91% 19,435 7,901 146%

From continuing operations:
Basic EPS 0.11 0.07 0.04 0.34 0.15 0.19
Dilutive EPS 0.11 0.07 0.04 0.34 0.15 0.19
After discontinued operation:
Basic EPS 0.11 0.07 0.04 0.34 0.17 0.17
Dilutive EPS 0.11 0.07 0.04 0.34 0.17 0.17
(1) 2006 results include discontinued operations

Sales for the fourth quarter and for the twelve months ended December 31, 2007, increased by 125 percent and 136 percent respectively, compared to the same periods in the prior year. These significant increases are due to increased production volumes from the two new plants that commenced operations in the first and third quarter of 2007, as well as continuous increase in production from the new plants added in 2006. In general, it takes approximately 2 to 4 quarters for a new plant to ramp up to its normal capacity level. Therefore, while Hanfeng's annual designed capacity reached 650,000 tonnes by the end of 2007, the total tonnage produced in 2007 and sold in the year was approximately 390,000 tonnes (169,000 tonnes in 2006), due to the required ramp-up period.

EBITDA from continuing operations increased significantly for both the fourth quarter (by 68 percent) and the year (by 124 percent) ended December 31, 2007, compared with the same periods in the prior year. The increased EDITDA relates to the higher production and sales volumes generated by the additional plant capacity brought on line in 2007. As a percentage of sales, EBITDA decreased from 18.3 percent to 13.7 percent in the fourth quarter and from 16.3 percent to 15.4 percent in 2007, compared with the same periods last year. The percentage decrease was primarily due to the raw material cost increase and some unusually high selling expenses incurred in the fourth quarter of 2007.

Gross profit for the fourth quarter increased accordingly by $5.4 million (or 107 percent) and by $14.7 million (or 121 percent) for the year, compared to the same periods from the prior year. Gross profit as a percentage of sales decreased from 21.0 percent to 19.3 percent in the fourth quarter, and from 20.3 percent to 19.0 percent for the year, compared with the same periods of last year. The percentage decrease was primarily due to rising raw material cost in 2007. Hanfeng was successful in increasing its selling price in the fourth quarter in order to partially offset the effects of the increased raw material costs. Hanfeng's fourth quarter average selling price in Chinese currency rose 7.3 percent from the level in the third quarter.

Operating expenses increased from $4.6 million in 2006 to $8.3 million in 2007 primarily due to the additional production capacity added during the year.

SG&A expenses increased overall in 2007 due to several factors including higher sales volumes, higher administrative costs associated with its business growth and a one-time shipping expense for an expedited delivery in late summer 2007. SG&A as a percentage of sales decreased year-over-year from 4.9 percent to 4.5 percent due to the higher sales volumes and offset by the aforementioned costs and one-time expenses. SG&A percentage increased from 3.5 percent in the fourth quarter of 2006 to 6.4 percent in 2007, because the one time cost was recorded during the fourth quarter of 2007.

Income tax rate for Hanfeng is nil for 2007. The National People's Congress in China approved tax reforms effective on January 1, 2008. Under the new tax regime, the five-year tax incentive available to only foreign entities in China has been removed. However a five-year transition period has been introduced. Hanfeng received approvals from the tax authorities specifying the transition rules for Heilongjiang and Jiangsu entities, which are two main production facilities in China. The most recent approval also confirms Hanfeng's Hi-Tech status for both locations. Based on the future production capacity allocation, Hanfeng's income tax rates in China are estimated by management be 1 percent for 2008, 2 percent for 2009, 13 percent for 2010, 2011 and 2012, and 15 percent thereafter.

Hanfeng's audited financial statements and MD&A will be available on www.sedar.com.

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

Date: Friday, March 7, 2008

Time: 10:00 am, Eastern Time

Dial in Number: 416-641-6118 or 1-866-223-7781

Taped Replay: 416-695-5800 or 1-800-408-3053
(available for 14 days)

Taped Replay Pass Code: 3254185

Live Webcast Link:

About Hanfeng Evergreen Inc.

Hanfeng is a leading provider of slow and controlled release fertilizers to blenders, the agriculture market and the urban greening market. 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. For more information, please visit: 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.

Contact Information