Hanfeng Evergreen Inc.

Hanfeng Evergreen Inc.

February 09, 2011 20:58 ET

Hanfeng Announces Second Quarter Fiscal 2011 Financial Results

-Shipments to Beidahuang Begin in the Quarter-

-Quarterly Results Negatively Impacted by Fixed Asset Write Down-

TORONTO, ONTARIO--(Marketwire - Feb. 9, 2011) - Hanfeng Evergreen Inc. (TSX:HF) ("Hanfeng" or the "Company") today reported its financial results for the three and six months ended December 31, 2010. All amounts are in Canadian dollars unless otherwise noted. 

Summary Financial Results
In Cdn $. thousands except per share data For the three-month period ended Dec 31 For the six-month period ended Dec 31
2010   2009 2010 2009
Sales $ 65,230   $ 61,400 $ 107,835 $ 116,500
Gross profit   6,989     10,265   12,072   19,076
EBITDA(1)   5,587     9,587   10,090   17,701
Net Income   (707 )   6,307   1,731   12,409
Basic EPS   (0.01 )   0.10   0.03   0.20
Diluted EPS   (0.01 )   0.10   0.03   0.20
(1)Earnings before interest, taxes, depreciation, and amortization (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. Hanfeng calculates it by adding (1) net income, (2) interest expense (or deducting interest income), (3) depreciation expense reported as part of cost of goods sold, (4) depreciation expense reported as a line item on the income statements, (5) fixed asset write-down, (6) income tax expense reported on the income statementand, (7) by deducting foreign exchange gain. This might not be the same definition used by other companies.

Sales increased 6 percent to $65.2 million for the quarter ended December 31, 2010, compared to $61.4 million achieved for the quarter ended December 31, 2009 as a result of sales of CarbonPower coated urea ("CPU") and partially offset by a decrease in tonnage sold of slow and controlled release fertilizers ("SCR"). EBITDA in the second quarter of fiscal 2011 was $5.6 million versus $9.6 million in the second quarter of fiscal 2010 primarily due to a lower gross profit and an increase in selling, general and administrative expenses as a result of the Indonesian joint venture's first quarter of operations. Net income (loss) decreased to a loss of $0.7 million for the current quarter versus net income of $6.3 million in the second quarter of fiscal 2010 as a result of a lower EBITDA and a fixed asset write-down of $5.0 million relating to the prill tower assets at the Company's Jiangsu facility. Loss per share was $0.01 for the second quarter of fiscal 2011 compared to earnings per share (EPS) of $0.10 in the second quarter of fiscal 2010. Excluding the impact of the fixed asset write-down, EPS for the three-month period ended December 31, 2010 was $0.06. 

Sales for the first half of fiscal 2011 were $107.8 million compared to $116.5 million in the first half of fiscal 2010. The decrease was primarily the result of a decrease in SCR tonnage sold and partially offset by sales of CPU. EBITDA for the six-month period ending December 31, 2010 was $10.1 million compared to $17.7 million in the comparative period in 2009. Net income was $1.7 million for the first six months of fiscal 2011 versus $12.4 million in the first six-month period of fiscal 2010. The decreases in EDITDA and net income in the six-month period of fiscal 2011 were due to the aforementioned factors. EPS was $0.03 for the six-month period ending December 31, 2010 versus $0.20 for the six-month period ending December 31, 2009. Excluding the impact of the fixed asset write-down EPS for the six-month period in fiscal 2011 was $0.10. 


Hanfeng sold 139,379 metric tonnes ("MT") of SCR for the quarter ending December 31, 2010, 75,747 MT more than the quarter ending September 30, 2010 as a result of commencing shipments to Beidahuang Agricultural Company Limited ("Beidahuang") during the quarter. Sales of SCR decreased by 15,583 tonnes during the current quarter versus the comparative quarter ending December 31, 2009 as a result of lower production volumes and partially offset by the commencement of deliveries to Beidahuang. Sales of SCR for the six-month period ending December 31, 2010 was 203,011 MT, a 27 percent decrease from the 277,767 MT sold in the first six-month period of fiscal 2010 as a result of lower production volumes and an increase in finished goods inventory for expected future deliveries to Beidahuang. 

Gross profit for SCR on a per metric ton basis in the second quarter of 2011 was RMB 308, a 28 percent decrease from the first quarter of fiscal 2011 and the comparative period last year as a result of initial deliveries to Beidahuang during the quarter. The initial sales to Beidahuang were at a reduced gross margin as a result of taking deliveries ahead of schedule and Beidahuang's requirement to further process the delivered products. 


During the second quarter of fiscal 2011, Hanfeng sold 29,982 MT of the new CPU product despite receiving the CarbonPower raw materials late in the quarter. As at December 31, 2010 Hanfeng had 4 to 6 months of CarbonPower inventory in China and in North America. Hanfeng began commercial sales of CPU in the third quarter of fiscal 2010 after securing the exclusive supply and distribution agreement with FBSciences, Inc. in November 2009. 

The average selling price of CPU in the second quarter of fiscal 2011 was RMB 2,131 per MT, up 3 percent from RMB 2,078 per MT in the first quarter of fiscal 2011. Despite urea prices rising 14 percent in the second quarter of 2011, Hanfeng's average selling price of CPU and average accounting cost of urea was consistent on a quarter over quarter basis. 

Gross profit per metric ton for CPU was RMB 102 in the second quarter of fiscal 2011, consistent with the gross profit of RMB 107 achieved in the first quarter of fiscal 2011. Hanfeng has in the past experienced some importation delays due to the nature of the CarbonPower® product and the sensitivity in China regarding biological products being imported into China. The Company is continuing to identify the most efficient manner in which to import the CarbonPower® product but does expect to continue to experience some delays. The Company is working at registering the product with the proper authorities in China. Once completed, this is expected to standardize the importation procedures. 

The average foreign exchange rate (i.e., CAD to RMB) for the quarter ended December 31, 2010 was 6.55 compared with 6.45 in the quarter ended December 31, 2009, representing a 2 percent appreciation in the Canadian dollar. While Hanfeng earns almost all of its revenue and pays almost all of its suppliers in RMB, it reports its financial results in Canadian dollars. The appreciation of the Canadian dollar over the reporting period had a negative impact on revenue and gross profits reported in Canadian dollars.

As at December 31, 2010, Hanfeng reported cash and cash equivalents of $33.3 million and net working capital of $165.3 million. As at December 31, 2010, Hanfeng had long-term debt of $2.6 million and short term bank loan of $6.2 million. In addition, Hanfeng has undrawn lines of credit in China totaling RMB 630 million (CAD $95.1 million).

Liquidity and Capital Resources
In thousands of Canadian dollars except for ratios December 31, 2010   June 30, 2010
Current ratio (1) 16.5 : 1   41.8 : 1
Cash & cash equivalents 33,323   51,949
Working capital 165,289   166,695
Total assets 286,656   286,781
Total debt (2) 8,790   Nil
Total equity 273,143   282,596
Total debt / Total equity 3.2 % N/A
  (1) Current ratio = Current Assets / Current Liabilities
  (2) Total debt does not include accounts payable, accrued liabilities, advances from customers, income tax payable and future income tax liability.

Business Highlights

  • Hanfeng entered into a memorandum of understanding ("MOU") with FBSciences, Inc. ("FBSciences)" to establish a joint venture (the "China JV") for the production of high value-added liquid fertilizer products under license from FBSciences, or products to be jointly developed by FBSciences and Hanfeng, and utilizing FBSciences' CarbonPower® core technology. Both parties believe the China JV structure will expedite the penetration of various CarbonPower® products into the China market. The operations for the proposed China JV will be located at the Company's Jiangsu facility and will utilize the building and infrastructure associated with the NPK Prill Tower which was permanently shut down in the second quarter.
  • Hanfeng became the first chemical fertilizer manufacturer to be awarded the National Environmental Friendly Ecological Fertilizer Certificate for both its slow and controlled release ("SCR") and value-added fertilizers. The award is granted after rigorous product testing and an extensive in-plant monitoring process by the Beijing ZhongHua Combination Certification Agency ("HQC"), a certification body responsible for the oil and chemical industry in China. Hanfeng will also assist HQC in establishing guidelines for other chemical fertilizer manufacturers.
  • In October 2010, Hanfeng held the grand opening for the 150,000 mtpa slow and controlled release fertilizer joint venture facility in Surabaya, Indonesia (the "JV facility"). The JV facility is the first to be constructed by Hanfeng outside of mainland China and is jointly owned by PT. Matahari Kahuripan Indonesia (the "Makin Group"), the largest producer of palm oil and tobacco in Indonesia, and PT. Sumber Agrindo Sejahtera ("Sejahtera"), Indonesia's largest agricultural distributor. At the grand opening, the Company announced that it will add 100,000 mtpa of bulk blending capacity to the multi-product facility, bringing the total design capacity to 250,000 mtpa. The additional blending capacity will enable the joint venture to provide a wider range of products, including CPU. The Makin Group and Sejahtera have agreed to purchase 100 percent of the first year production from the plant. 

  • In November 2010, Hanfeng completed a definitive agreement with Beidahuang to establish a joint venture facility ("the Manufacturing JV"). The 150,000 metric tonnes per annum ("mtpa") slow and controlled release fertilizer project will consist of a 100,000 mtpa sulphur coated urea plant and a 50,000 mtpa bulk blending plant. The plant construction is expected to start in the first quarter of calendar 2011 and be completed within twelve months of commencement. The Company's share of the committed capital relating to this joint venture is $6.8 million (RMB 45 million). During the quarter, Beidahuang also became a significant customer for the Company. We expect the overall relationship with Beidahuang to continue to strengthen and as such, both parties have determined that they do not need to proceed with the previously announced joint venture ("the Distribution JV"). 

Mr. Xinduo Yu, CEO of Hanfeng and Mr. Paul Begin, CFO of Hanfeng, will host a conference call to review the Company's financial and operational performance. Management invites analysts and investors to participate in the conference call.

Date:   February 10, 2011
Time:   8:30 am, Eastern Time
Dial in Number:   1-800-967-7141 or 1-719-457-2662
Taped Replay:   1-877-870-5176 or 1-858-384-5517
Taped Replay Pass Code:   3012229
Webcast Presentation Link:   http://viavid.net/dce.aspx?sid=00008143

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

About Hanfeng Evergreen Inc.

Hanfeng is the largest producer of slow and controlled release fertilizers in China. It is 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. All amounts are stated in Canadian dollars except for noted otherwise.

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