Hanfeng Evergreen Inc.

Hanfeng Evergreen Inc.

December 12, 2011 18:56 ET

Hanfeng Evergreen Announces First Quarter 2012 Financial Results

Planned maintenance shutdowns at primary production facilities and stockpiling negatively impacted sales revenue; Gross margins remain robust

Company confirms 200,000 metric tons in orders from Beidahuang for delivery in January to April 2012

TORONTO, ONTARIO--(Marketwire - Dec. 12, 2011) - Hanfeng Evergreen Inc. (TSX:HF) ("Hanfeng" or the "Company") today reported its financial results for the first quarter ended September 30, 2011, the first reporting period for the Company under International Financial Reporting Standards ("IFRS"). All amounts are in Canadian dollars unless otherwise noted.

Operational and Financial Highlights:


  • Hanfeng secured sales contracts with Beidahuang for 200,000 metric tons ("MT") of SCR to be delivered during the third and fourth quarters of fiscal 2012 (January - April 2012).
  • The Company completed the largest maintenance turnaround ever performed at the Heilongjiang facility. The turnaround was completed on budget at a cost of approximately $0.70 million. The turnaround caused the Heilongjiang facility to be shut down for the majority of the first quarter, which negatively affected production and operating results. The lost production totaled approximately 76,000 MT of practical capacity(1) during the first quarter of fiscal 2012. The limited production from Heilongjiang in the first quarter of fiscal 2012 and the majority of production in the second quarter will be stock-piled in order to satisfy the sales contract with the Beidahuang group of companies.
  • Completion of the annual maintenance turnaround at Jiangsu at a total cost of approximately $0.15 million, which was expensed in the quarter. The facility was shut down during the month of August to accommodate the maintenance turnaround. The facility was also shut down in July due to weather conditions. Both issues resulted in lost practical capacity1 of approximately 21,000 MT.
  • The Company renewed a $97.7 million (RMB 600 million) credit facility ensuring continued access to working capital.

(1) Practical capacity is calculated at 85% of design capacity, based on downtime required for normal operations throughout the year as well as downtime resulting from changing of production runs.


  • The Indonesian joint-venture's quarterly production increased to 28,668 MT (9,747 MT net to Hanfeng), or approximately 39,000 tons (net to Hanfeng) on an annualized basis, representing approximately 50 percent capacity utilization levels. Production was negatively affected during the quarter due to holidays related to the holy month of Ramadan during August 2011. The Company expects that the facility continue to ramp up production capacity utilization during the first half of calendar 2012.
  • Construction of the additional 200,000 MT per annum of bulk blending capacity is currently under way and is expected to be commissioned in the third quarter of fiscal 2012.

Summary Financial Results For the three month period ended

(in thousands in $Cdn except percentages and per share data)
Sep 30, 2011 Sep 30, 2010
Sales $11,723 $42,605
Gross profit 1,577 4,904
EBITDA(1) (925 ) 5,187
Net Income (2,000 ) 3,122
Basic IPS (0.03 ) 0.05
Diluted IPS (0.03 ) 0.05
Non-IFRS IPS(2) (0.03 ) 0.05

(1) See EBITDA definition below

(2) Non-IFRS income per share ("IPS") is calculated by adding back the net of tax impact of non-cash, fixed asset write-downs to basic EPS.

Sales for the quarter ended September 30, 2011 decreased to $11.7 million from $42.6 million for the same quarter of fiscal 2011. The decrease in sales is due primarily to the reduced volume of production as a result of the planned maintenance turnaround at the Heilongjiang facility as well as the planned and seasonal maintenance at the Jiangsu facility, partially offset by increased sales at its Shanxi joint venture plant in China and new joint venture facility in Indonesia. In addition, the Company began producing and stockpiling inventory to support the 200,000 MT signed sales contract with Beidahuang, scheduled for delivery commencing in January 2012.

Gross margin as a percentage of sales was higher for the quarter ended September 30, 2011 at 13.5 percent, as compared to 11.5 percent for the quarter ended September 30, 2010. Gross margins were positively impacted by higher margins at the Indonesian Joint-Venture, resulting from a sale of inventory whose raw material prices were below current market prices, as a result of market price fluctuations and the timing of sale. Gross profit decreased to $1.6 million for the quarter ended September 30, 2011, as compared to $4.9 million for the quarter ended September 30, 2010 due to lower sales as a result of reduced production capacity described above.

General and Administrative ("G&A") expenses increased to $2.5 million for the quarter ended September 30, 2011 from $1.6 million for the quarter ended September 30, 2011 primarily due to labour costs and what would normally be production costs at Heilongjiang being reclassified as G&A expenses during the Heilongjiang Maintenance Turnaround, foreign exchange losses in Indonesia (as many transactions are settled in USD, and not in Rp) increased maintenance expenditures at Jiangsu, and the impact of operations commencing at the Indonesian Joint Venture.

EBITDA was negative $0.9 million versus $5.2 million in the first quarter of fiscal 2011 due to factors previously noted. The Company reported a net loss of $2.0 million in the first quarter of fiscal 2012 compared to net income of $3.1 million during the same quarter in fiscal 2011. As a result, income per share ("IPS") was negative $0.03 for the first quarter of fiscal 2012, compared to IPS of $0.05 for the same quarter during fiscal 2011. Non-IFRS loss per share was $0.03 for the first quarter of fiscal 2012.

Liquidity and Capital Resources

In thousands of Canadian dollars except for ratios September 30, 2011 June 30, 2011
Current ratio (1) 9.4:1 13.1:1
Cash 35,248 65,517
Working capital 191,926 177,305
Total assets 329,417 298,410
Total bank debt 13,732 10,527
Total equity 303,522 280,961
Total debt / Total equity 4.5% 3.7%


(1) Current ratio = Current Assets / Current Liabilities

Cash was $35.2 million as at September 30, 2011, compared to $65.5 million as at June 30, 2011. Cash was used to finance working capital, predominantly inventory purchases. Total inventory and advances to suppliers increased by $82.1 million to $167.5 million at September 30, 2011. The increase was mainly due to the inventory build-up process in the first quarter of fiscal 2012 in preparation for production and delivery of the Beidahuang orders in the third quarter of fiscal 2012.

The Company will also hold a conference call to discuss the financial results on Tuesday, December 13, 2011 at 10:00 a.m. Eastern Standard Time (EST). Mr. Niral Merchant, CFO and Mr. Loudon Owen, Non-Executive Chairman of the Board of Directors will host the call, and invite analysts and investors to participate in the conference call.

Date: Tuesday, December 13, 2011
Time: 10:00 a.m. Eastern Standard Time
Dial in Number: 1-888-505-4347 or 1-719-325-2219
Taped Replay: 1-877-870-5176 or 1-858-384-5517
Taped Replay Pass Code: 4424361
Webcast Presentation Link: http://viavid.net/dce.aspx?sid=00009109

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 selected 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.

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