Hanfeng Evergreen Inc.

Hanfeng Evergreen Inc.

May 06, 2009 20:36 ET

Hanfeng Announces Record First Quarter Financial Results

Company to add 20,000 tonnes additional capacity in Shandong

TORONTO, ONTARIO--(Marketwire - May 6, 2009) - Hanfeng Evergreen Inc. ("Hanfeng" or the "Company") (TSX:HF) today reported its financial results for the first quarter of fiscal 2009 ended March 31, 2009. All amounts are in Canadian dollars unless otherwise noted.

Summary Financial Results

For the 3 month period ended March 31
(in thousands in $Cdn) except --------------------------------------
percentages and per share data 2009 2008 change

Sales $75,849 $55,795 36%
Gross profit 12,169 10,744 13%
EBITDA 12,212 8,444 45%
Net Income 10,070 7,072 42%
Basic EPS 0.16 0.12 $0.04
Diluted EPS 0.16 0.11 $0.05

Note 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.

Sales grew to $75.8 million in the first quarter ended March 31, 2009, compared to $55.8 million in the same quarter of 2008. EBITDA in the first quarter of 2009 was $12.2 million, compared to $8.4 million in the same period in 2008. Net income was $10.1 million for the quarter compared to $7.1 million in 2008. Earnings per share ("EPS") were $0.16 for the first quarter compared to $0.12 for the same period in 2008.

The increase in top and bottom line performance was driven by several factors including increases in production and sales volume, as well as the impact of foreign exchange. Approximately 133,325 metric tons (MT) of fertilizer were produced and 137,351 MT sold in the quarter, compared to 128,163 MT and 127,970 MT, respectively, in the same period in 2008. There were no international sales made in the first quarter of 2009 due to the adoption of a special export duty by the China government in April 2008, ranging from 150 percent to 185 percent. In the first quarter of 2008, international sales were approximately 15 percent of total sales.

In the quarter, Hanfeng's average selling price decreased by 2.5 percent to approximately RMB 3,032 per MT, compared to RMB 3,111 per MT in 2008. The decrease was due primarily to decreases in raw material costs, particularly urea, phosphate, and potash (all conventional fertilizers), which collectively account for approximately 90 percent of Hanfeng's cost of goods sold. In 2008, conventional fertilizer prices rose to record highs in China. At their peak in 2008, prices for urea, phosphate and potash were approximately 39 percent, 125 percent and 32 percent higher than the prices in the first quarter of 2009, respectively. During the quarter, some conventional fertilizer producers began to liquidate the high cost inventories carried over from 2008, creating significant downward pressure on market pricing. In response, Hanfeng elected to reduce the pricing on its slow and control release fertilizer in order to continue to maintain and grow its customer base. The market is expected to return to its normal selling pricing conditions once the liquidation ends.

Gross profit in the first quarter of 2009 increased to $12.2 million, a 13 percent increase from the same quarter of the prior year. In considering the China market only since no international sales were made in the first quarter of 2009, gross profit on a per metric ton basis was approximately RMB 489, compared with RMB 509 in the same quarter of the prior year, a 3.9 percent decrease, due to the aforementioned market conditions.

At the end of the first quarter of 2009, there were less than 500 MT of finished goods on hand. Hanfeng's annual design production capacity increased from 650,000 metric tons per annum (MTPA) as at March 31, 2008 to 725,000 MTPA as at March 31, 2009.

Throughout 2008 and the first quarter of 2009, the Chinese Renminbi (RMB) appreciated approximately 23 percent to the Canadian dollar. 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 March 31, 2009, Hanfeng reported cash and cash equivalent of $56.3 million and net working capital of $144.9 million. The increase in working capital is primarily due to an increase in prepaid inventory as the Company continues to take advantage of its purchasing power in order to manage its inventory costs. As at March 31, 2009, Hanfeng had no long-term debt and bank debt of $42.4 million.

Balance Sheet Highlights
(In CAD$ thousands except for ratios) March 31, 2009 December 31, 2008
Current ratio (1) 4.1 : 1 5.4 : 1
Cash & cash equivalents 56,308 26,439
Working capital 144,947 131,077
Total assets 329,898 295,713
Total debt 42,412 25,130
Total equity 283,196 266,194
Debt / Equity 15% 9%
(1) Current ratio equals Current Assets / Current Liabilities
(2) Total debt does not include accounts payable, accrued liabilities,
advances from customers and income tax payable.

Shandong Minghua Joint Venture:

Hanfeng is pleased to report that the 100,000 MTPA joint venture ("JV") facility being built in Shandong Province with Shandong Mingshui Great Chemical Group ("Minghua") is under commissioning now and expected to begin operations in July 2009 according to schedule. The Company will host an opening ceremony for the facility on May 18, 2009. To further expand production at the JV facilities, Hanfeng and Minghua recently entered into an agreement to merge Minghua's existing 40,000 MTPA sulfur coated plant with the newly constructed JV facility. Under the terms of the agreement, the JV company will acquire all assets of the facility for approximately RMB 20 million (or $3.6 million), subject to final adjustments. The JV Company then will upgrade this plant to improve its operating efficiency and product quality. Each JV party's investment in the JV Company will increase by 50 percent of the acquisition cost. Hanfeng's portion will be paid in cash. 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.

Other Business Highlights:

- Hanfeng announced that through the renewal of existing, and the establishment of new debt facilities, the Company has access to RMB 230 million (C$42 million) in working capital through loan facilities with China-based banks.

- The Company was recognized by the Heilongjiang Agricultural Industrialization Committee (HAIC) as a Leading Enterprise in the province. The designation is awarded to the top agricultural companies as determined by the HAIC. The designation is reviewed annually and provides recipients with preferential banking status. Specifically, government owned banks will lend to the recipient of the award at bank prime without a collateral security requirement. As
Hanfeng continues to expand its operations in China, it will explore new debt arrangements that can take advantage of the designation.

- Hanfeng completed its previously announced joint venture agreement ("JV") with PT. Matahari Kahuripan Indonesia ("Makin Group"), the largest producer of palm oil and tobacco in Indonesia, and PT. Sumber Agrindo Sejahtera ("Sejahtera Group"), Indonesia's largest agricultural distributor, to build and operate the 150,000 MPTA initial phase of a slow and controlled release fertilizer facility. Construction is scheduled to commence in May 2009 and is expected to be completed by June 2010. Under the final terms of the joint venture agreement, the Makin Group will use a portion of the JV production for its oil palm plantation, and Sejahtera will purchase the remainder for sale through its extensive distribution network in Southeast Asia. Hanfeng will fund its portion of the construction costs from cash on hand. The working capital requirements of the Indonesian JV are expected to be funded from bank loans to be secured by the JV in Indonesia.

Hanfeng Evergreen Inc. will host a conference call to discuss its first quarter 2009 financial results. Ms. Madeline Yu, CFO and Robert Beutel, Chairman of the Board, will host the call.

Date: Thursday, May 7, 2009
Time: 10:00 am, Eastern Time

Dial in Number: 416-641-6136 or 1-866-299-8690
Taped Replay: 416-695-5800 or 1-800-408-3053
Taped Replay Pass Code: 7241112

Webcast Presentation Link: http://events.onlinebroadcasting.com/hanfeng/050709/index.php

Hanfeng will hold its Annual General Meeting of Shareholders at 4:30pm on May 7, 2009 at the Ontario Heritage Center, 8 Adelaide Street, Toronto, Ontario.

Hanfeng's First quarter 2009 financial statements and MD&A have been filed and will be available at www.sedar.com.

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.

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