TORONTO, ONTARIO--(Marketwire - Feb. 14, 2013) - Hanfeng Evergreen Inc. (TSX:HF) ("Hanfeng" or the "Company") today filed its Notice of Annual and Special Meeting of Shareholders to be held on March 15, 2013 and Management Information Circular for the previously announced Arrangement involving Hanfeng Evergreen Inc. and 8310831 Canada Inc., a company controlled by Mr. Xinduo Yu, the CEO of the Company. Hanfeng also reported its financial results for the second quarter and six months of fiscal 2013 ended December 31, 2012. All amounts are in Canadian dollars unless otherwise noted.
Privatization Proposal & Arrangement Agreement
As previously announced, the Company received a written non-binding proposal to take the Company private for $2.20 per share (the "Privatization Proposal") from Mr. Xinduo Yu, the Company's President and Chief Executive Officer ("CEO") and the holder of approximately 20.4% of Hanfeng's outstanding common shares.
A previously formed special committee of independent directors (the "Special Committee") undertook to review and consider the Privatization Proposal.
The Special Committee, having undertaken a thorough review of, and having carefully considered, the Privatization Proposal, including consulting with independent legal and financial advisors, unanimously determined that the Privatization Proposal is in the best interests of the Company and the consideration of $2.25 per share (revised upwards from $2.20 after further negotiation) payable pursuant to the Privatization Proposal is fair to the Company's minority shareholders. Accordingly, the Special Committee unanimously recommended that the Board of Directors approve the Privatization Proposal. The Board of Directors (without the participation of the CEO) unanimously determined that the Privatization Proposal is in the best interests of the Company and the consideration of $2.25 per share payable pursuant to the Privatization Proposal is fair to the Company's minority shareholders, and approved the Company entering into an arrangement agreement in order to effect the Privatization Proposal, subject to shareholder approval and court approval.
On February 13, 2013 the Ontario Superior Court of Justice granted an interim order upon the application of the Company approving the process for seeking shareholder consent of a Plan of Arrangement under the Ontario Business Corporations Act, to effect the arrangement agreement.
Additional disclosure regarding the transaction is provided in the management information circular which has been filed on SEDAR and will be available at www.sedar.com.
Sales decreased by $37.2 million to $8.6 million in the second quarter of Fiscal 2013 ("Q2FY13") from $45.8 million in Q2FY12. The decrease in sales is due primarily to the absence of any sales to Beidahuang from HLJ during Q2FY13 and minimal sales in JS, as well as a shift in seasonal production during Fiscal 2012, where sales were made in the second quarter of Fiscal 2012 ("Q2FY12") as opposed to the first quarter of Fiscal 2012 ("Q1FY12"), due to the HLJ 2011 Maintenance Turnaround. Sales were also negatively impacted during Q2FY13 at Hanampi due to sales returns relating to non-compliant product.
Gross profit decreased during Q2FY13 to a loss of $37.9 million from $7.0 million in Q2FY12 predominantly as a result of the impairment of inventory of $31.0 million and advance to suppliers of $9.0 million (where the net realizable value was estimated to be lower than cost) being included in cost of sales, coupled with the decreased sales in China. See "Impairment" below.
General and Administrative ("G&A") expenses were slightly lower in Q2FY13 at $2.2 million, compared to $2.6 million in Q2FY12. The decrease is predominately due to lower foreign exchange loss and reduced stock based compensation expense, coupled with consistent G&A at the operations of HLJ, JS and Hanampi.
Impairment loss of $78.5 million is related to property and equipment in Q2FY13, versus nil for Q2FY12. The increase is due primarily to the measurement of the recoverable amount of the HLJ/JS CGUs based on fair value less cost to sell as a result of the valuation analysis conducted in connection with the Special Committee's assessment of the Privatization Proposal. See "Impairment" below.
EBITDA decreased during Q2FY13 to negative $1.9 million compared to $6.0 million during Q2FY12. The main reason for the decrease was lower production and sales volumes during Q2FY13, which generated reduced gross profit.
The Company reported a net loss of $122.8 million in Q2FY13 compared to net income of $2.9 million during the same quarter in fiscal 2012. As a result, loss per share was $2.04 for Q2FY13, compared to income per share of $0.05 for the same quarter during fiscal 2012. Non-IFRS loss per share was $0.07 for Q2FY13.
For the six month period in fiscal 2013 ("H1FY13"), sales were $50.9 million versus $57.5 million in the comparative six month period last year ("H1FY12"). Gross margin was negative 63 percent in H1FY13 versus 14.8 percent in H1/12, producing negative gross profit of $31.9 million and $8.5 million respectively. See "Impairment" below.
General and Administrative ("G&A") expenses were lower in H1FY13 at $3.6 million, compared to $5.1 million in H1FY12. The decrease is due to decreased foreign exchange loss, a reduction in public company compliance costs, and reduced payroll and payroll related expenses, caused by a reduction in headcount at the HLJ facility between the comparative periods, as well as lower maintenance expenses in H1FY13 compared to H1FY12.
Impairment loss of $78.5 million relating to property and equipment in H1FY13, is a non-cash item, versus nil for H1FY12. See "Impairment" below.
EBITDA decreased during H1FY13 to $1.9 million compared to $5.0 million during H1FY12. The main reason for the decrease was reduced gross profit and operating income.
Net loss for H1FY13 was $121.4 million compared to a profit of $0.9 million during H1FY12. As a result, loss per share was $2.02 for H1FY13, compared to income per share of $0.02 for H1FY12. Non-IFRS loss per share was $0.04 for H1FY13.
The Company performed an assessment of whether there is any indication of impairment in the carrying amount of its CGUs as of December 31, 2012. Based on this assessment, the Company decided that it needed to measure its recoverable amount of its CGUs. The Company measured the recoverable amount based on fair value less cost to sell. The assumptions underlying the Company's measurement of recoverable value were drawn from the formal valuation prepared in connection with the Special Committee's review of the Privatization Proposal. The Company determined that the estimated recoverable amount of the HLJ/JS CGUs, its manufacturing facilities in China, was lower than its carrying amount. An impairment of approximately $78.5 million was recorded against property and equipment to fully impair these assets. In addition, the Company determined that impairments of approximately $31.0 million against inventory and $9.0 against advances to suppliers were required at HLJ/JS. The impairment of inventory and advances to suppliers is included as cost of goods sold.
Hanfeng's financial statements and MD&A have been filed on SEDAR and will be available at www.sedar.com.
About Hanfeng Evergreen Inc.
Hanfeng is a leading producer and supplier of value-added fertilizer solutions in emerging markets. It is the largest producer of slow and controlled release fertilizer in two of world's most significant agricultural markets: the People's Republic of China ("China") and the Republic of Indonesia. As the first company to introduce slow and controlled release fertilizers into China's agriculture market, Hanfeng has established itself both as a market leader and innovator. A Canadian Company, Hanfeng is headquartered in Toronto, Ontario and its shares trade on the Toronto Stock Exchange under the ticker HF.
EBITDA: Earnings before interest, taxes, depreciation, and amortization ("EBITDA") is a non-IFRS 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 reported on the income statements (or deducting interest income) (3) amortization expense reported as part of cost of goods sold on the income statements, (4) amortization expense reported as a line item on the income statements, (5) income tax expense reported on the income statements, (6) write-downs of intangible assets and property, plant and equipment write-down and (7) and by deducting foreign exchange gain (loss). EBITDA does not have a standard meaning prescribed under IFRS and is therefore unlikely to be comparable to similar measures presented by other companies.
This press release contains forward-looking statements based on current expectations. Forward-looking statements include, without limitation, statements evaluating market and general economic conditions, and statements regarding growth strategy and future-oriented projected revenue, costs and expenditures. Actual results could differ materially from those projected and should not be relied upon as a prediction of future events. A variety of inherent risks, uncertainties and factors, many of which are beyond Hanfeng's control, affect the operations, performance and results of Hanfeng and its business, and could cause actual results to differ materially from current expectations of estimated or anticipated events or results. Some of these risks, uncertainties and factors include the impact or unanticipated impact of: current, pending and proposed legislative or regulatory developments in the jurisdictions where Hanfeng operates, in particular in China and the Republic of Indonesia; changes in tax laws; political conditions and developments; intensifying competition from established competitors and new entrants in the fertilizer industries; technological change; currency value fluctuation and changes in foreign exchange restrictions; changes in Chinese government support or restrictions on foreign investment; general economic conditions worldwide, as well as in China and South East Asia; Hanfeng's success in developing and introducing new products and services, constructing and operating new manufacturing facilities, expanding existing distribution channels, developing new distribution channels and realizing increased revenue from these channels. This list is not exhaustive of the factors that may affect any of Hanfeng's 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. Hanfeng undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made, or to reflect the occurrence of unanticipated events, whether as a result of new information, future events or results or for any other reason. Readers are cautioned not to put undue reliance on forward-looking statements.