Hanfeng Evergreen Inc.

Hanfeng Evergreen Inc.

September 30, 2013 21:56 ET

Hanfeng Evergreen Announces Fourth Quarter and Full Year 2013 Audited Financial Results

TORONTO, ONTARIO--(Marketwired - Sept. 30, 2013) - Hanfeng Evergreen Inc. (TSX:HF) ("Hanfeng" or the "Company"), a provider of value-add fertilizers in China and South East Asia, today reported its financial results for the fourth quarter and year ended June 30, 2013. All amounts are in Canadian dollars unless otherwise noted.

Summary Financial Results

In $thousand's except per share data
Q4FY13 Q4FY12 Change YTDQ4 YTDQ4 Change
FY13 FY12
Sales 73,916 84,228 (12 )% 164,720 212,337 (22 )%
Gross profit/(loss) 39,817 8,772 355 % 15,620 27,116 (42 )%
Impairment loss 800 10,117 (92 )% 79,346 10,117 784 %
Adjusted EBITDA (1) 4,023 8,540 (53 )% 8,281 24,117 (66 )%
Net income 33,026 (2,348 ) (1,507 )% (80,840 ) 6,925 (1,067 )%
Income per share ("IPS")
Basic IPS $0.55 ($0.04 ) ($1.34 ) $0.11
Diluted IPS $0.55 ($0.04 ) ($1.34 ) $0.11
Non IFRS IPS (2) $0.04 $0.08 $ 0.04 $0.22
Weighted average number of shares (in
millions of shares)
Basic 60.2 60.4 60.2 60.7
Diluted 60.2 60.4 60.2 60.7
See definitions at end of news release

Financial Highlights:

Sales decreased to $73.9 million in the fourth quarter of fiscal 2013 ("Q4FY13") versus $84.2 million in the fourth quarter of fiscal 2012 ("Q4FY12"). The decrease in sales is due primarily to reduced sales volumes from its China operations due to lower sales volumes to the Company's largest customer, coupled with production issues relating to excessive snowfall during the 2012/2013 winter season, offset by a small increase in selling price per metric ton ("MT").

Gross profit was higher for Q4FY13 at $39.8 million compared to $8.8 million during the comparable period in fiscal 2012, predominantly due to the reversal of a portion of the impairment recorded in the second and third quarters of fiscal 2013 related to inventory and advances to customers totaling $26.0 million and $9.6 million respectively.

Adjusted EBITDA(1) decreased during Q4FY13 to $4.0 million compared to $8.5 million during Q4FY12. The main reason for the decrease was lower production and sales volumes during Q4FY13, which generated reduced gross profit, as explained above. Net income for Q4FY13 was $33.0 million compared to a loss of $2.3 million during Q4FY12. The main reasons for the increased net income are the reversal of impairment during Q4FY13, as described above. Basic and diluted income per share ("IPS") was $0.55 for the fourth quarter of fiscal 2013 versus a loss of $0.04 in the same period in fiscal 2012. On a Non-IFRS basis(2), IPS was $0.04 in Q4FY13 versus $0.08 in Q4FY12.

For fiscal 2013, the Company reported revenue of $164.7 million versus $212.3 million during the same period last year. The decrease in sales is due primarily to reduced sales in China as noted above.

Gross profit decreased to $15.6 million in fiscal 2013 versus $27.1 million in gross profit in the same period last year primarily as a result of the aforementioned factors from the China operations. Gross margin percentage was lower in fiscal 2013 at 9.5%, as compared to 12.8% in the comparative period last year. Gross margin as a percentage of sales were lower in China, and were further reduced as a result of an impairment of inventory and customer advances as described above and certain sales discounts.

Adjusted EBITDA(1) decreased during Fiscal 2013 to $8.3 million compared to $24.1 million during Fiscal 2012. Net loss for Fiscal 2013 was $80.8 million compared to a profit of $6.9 million during Fiscal 2012. The main reasons for the decreased net income resulted from impairment charges recorded in the second quarter of fiscal 2013 in property and equipment and the impairment of inventory and advances to suppliers, as described above. Basic and diluted income per share ("IPS") was a loss of $1.34 in fiscal 2013 versus earnings of $0.11 in the same period in fiscal 2012. On a Non-IFRS basis(2), IPS was $0.04 in fiscal 2013 versus $0.22 in the comparative period last year.

Cash was $56.5 million as at June 30, 2013, compared to $81.1 million as at June 30, 2012. Cash decreased as a result of the negative cash flow from operating activities, a net increase in non-cash working capital assets including inventory and advances to suppliers, as well as the injection of USD $8.2 million into the Indonesian Joint Venture by the Company.

Total inventory and advances to suppliers increased to $99.9 million as at June 30, 2013 compared to $77.7 million as at June 30, 2012. The increase is mainly due to increased purchases of raw materials in China during the 2013 fiscal year offset by an impairment to inventory and advances to suppliers based on the net realizable value being estimated to be lower than cost. Inventory would have been higher as at June 30, 2013 had it not been for damage caused by a snow storm during Q3FY13, which resulted in approximately 43,000 MT or $29.4 million of raw materials being sold at an amount close to cost, recorded as part of other income totaling $0.2 million.

Current Status of Privatization Proposal

There has been no material development since the Company announced that it was informed by Mr. Xinduo Yu and 8310831 Canada Inc., a corporation wholly-owned by Mr. Yu (collectively, the "Purchaser") that the previously announced debt financing committed by Nongken Longgang Agriculture Investment Co., Limited in favour of the Purchaser for the purpose of financing $85 million, a portion of the cash consideration payable under the proposed privatization of the Company, by the Purchaser had expired and was no longer available to the Purchaser at this time. At that time, the Company announced that it is in the ongoing process of exploring strategic alternatives to the Privatization Proposal by the Purchaser pursuant to the "go shop" rights that were previously negotiated by the Special Committee at the time of the second extension of the outside date under the Arrangement Agreement that was previously announced on May 3, 2013. In connection with that process, the Chairman of the Special Committee, on behalf of the Company, has engaged in discussions, negotiations and due diligence with third parties, which has resulted in an expression of interest in a possible strategic acquisition transaction with the Company. While such discussions and negotiations are ongoing, there is no assurance that an alternative transaction can or will surface or be completed.

Hanfeng's audited 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 producer and supplier of value-added fertilizer solutions in emerging markets. It is one of the largest producers 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. A Canadian Company, Hanfeng is headquartered in Toronto, Ontario and its shares trade on the Toronto Stock Exchange under the ticker HF.

  1. Adjusted EBITDA: Adjusted earnings before interest, taxes, depreciation, and amortization ("Adjusted 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 Adjusted EBITDA by adding (1) net income/(loss), (2) interest expense reported on the income statements (or deducting interest income), (3) depreciation and amortization expense reported as part of cost of goods sold, (4) depreciation and amortization expense reported as part of general and administrative expenses, (5) income tax expense (recovery), (6) impairment and disposition of long-lived assets and impairment of working capital items, where the net realizable value is lower than the cost, (7) loss (gain) on disposal and (8) foreign exchange loss (gain). Adjusted EBITDA does not have a standard meaning prescribed under IFRS and is therefore unlikely to be comparable to similar measures presented by other companies.

  2. Non-IFRS income per share ("IPS") is calculated by adding back non-cash impairment of assets and loss on disposition to basic IPS.

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; the outcome of the privatization transaction; the outcome of shareholder disputes in the Indonesian joint venture; supply or purchases of non-compliant products; 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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