Hanfeng Evergreen Inc.

Hanfeng Evergreen Inc.

November 12, 2008 16:30 ET

Hanfeng Reports Third Quarter and Nine Month Results


TORONTO, ONTARIO--(Marketwire - Nov. 12, 2008) - Hanfeng Evergreen Inc. ("Hanfeng" or the "Company") (TSX:HF) today announced that sales increased 115 percent to $68.1million for the quarter ended September 30, 2008 compared to $31.6 million in the same quarter of 2007. EBITDA(1) in the third quarter of 2008 was $9.6million, a 102 percent increase over the $4.8 million in the same period in 2007. Net income increased by 73% to $8.2million for the quarter versus $4.7 million in 2007. Earnings per share ("EPS") were $0.13 for the third quarter of 2008 compared to $0.08 in the same period in 2007.

For the nine months ended September 30, 2008, sales grew 121 percent to $191.7million compared to $86.7 million in the same period in 2007. EBITDA(1) in the first nine months of 2008 was $27.2million, a 90 percent increase compared to the $14.3 million reported in the same period in 2007. Net income was $23.1 million for the nine-month period ended September 30, 2008 compared with $12.6 million in 2007, an 83 percent increase. EPS was $0.38 ($0.37 fully diluted) for the nine-month period compared to $0.23 ($0.22 fully diluted) for the same period in 2007.

As at September 30, 2008, Hanfeng reported cash, cash equivalents, and term deposits of $36.5 million and working capital of $114.5 million versus $28.7 million and $91.1 million respectively at December 31, 2007. At September 30, 2008, Hanfeng had no long-term debt and bank debt of $28 million, which is comprised primarily of working capital loans provided by Chinese banks.

"Hanfeng's strong revenue and earnings performance, our focused expansion strategy, and our financial discipline have positioned the Company for continued long term growth," stated Xinduo Yu, President and CEO of Hanfeng. "All our current growth initiatives are fully funded and we have ample resources to address new opportunities. With our primary focus on the vast Chinese agriculture market, we expect to continue to experience significant demand for our unique low carbon, environmental friendly, high- efficiency slow release fertilizers."

Hanfeng's annual design production capacity reached 725,000 tonnes per annum ("TPA") in the third quarter of 2008 with the completion of the Company's first 50/50 joint venture project. The 50,000 TPA sulfur coated urea (SCU) facility is located in Shanxi province and was constructed next to Shanxi Fengxi Fertilizer Industry (Group) Ltd. 700,000 TPA urea production facility. Historically, new plants require approximately 2 to 4 quarters to ramp up to their normal capacity level.

The Company's third quarter production totaled approximately 131,000 tonnes, a 42% over the same period last year, and a decrease from the second quarter (141,000 tonnes) of this year, which is primarily due to a one-month shut down of the Jiangsu tower plant due summer weather conditions. Hanfeng has made technical improvements to this tower plant, which reduced the shutdown time in 2008 compared to 2007 (1 month vs. 3 months). For the nine-month period, production increased by 55% from the same period in 2007.

Hanfeng sold approximately 125,000 tonnes fertilizer in this quarter and 395,000 tonnes in the first nine months of 2008. At the end of the third quarter, there was approximately 8,900 tonnes of finished goods on hand, a small increase from the previous quarter end (3,100 tonnes) mainly due to additional production from the Company's 50,000 TPA joint venture facility in Shanxi Province, which was held in inventory for quality testing.

Gross profit increased 83 percent in the third quarter and 93 percent in the nine-month period in 2008 compared to the same periods in 2007. Gross profit as a percentage of sales decreased by 2.6 percent to 14.4 percent in the third quarter of 2008 compared with the same quarter of 2007, and by 1.1 percent on a consecutive quarter basis, mainly due to volatility in raw material costs since the summer of 2007. Hanfeng's China domestic selling price increased by 47.5 percent in the third quarter of 2008 compared with the same period a year ago, and by 10.8 percent on a consecutive basis. Along with the sales volume increase in every quarter since the beginning of 2006, Hanfeng has been increasing its selling price to at least track the dollar value increases in raw material costs. In addition, international sales (typically higher margin with lower volume) decreased in this quarter from the last quarter (nil vs. 4,500 tonnes), as a result of the introduction of 100 percent additional export tax on all types of fertilizers by the Chinese government for the period between April 20 and September 30, 2008. The export tax was subsequently extended to December 31, 2008.

Operating expenses increased from $1.6 million in the third quarter of 2007 to $1.9 million this quarter and from $4.3 million in the nine month period in 2007 to $8.3 million in 2008, primarily due to the additional production capacity added during the year and increased freight charges related to the international sales mostly in the first quarter of 2008.

"While conventional fertilizer prices rose significantly on a year over year basis in China, Hanfeng has leveraged its growing reputation for quality and our proven slow release technologies to grow its market share. By offering Chinese farmers the lowest cost fertilizers on a crop output tonnage basis, Hanfeng products not only provide the opportunity for higher income to farmers, but also a long-term solution to some of China's more urgent issues, including improving crop yields, reducing the environmental damage caused by conventional fertilizers, and energy conservation. China continues to provide strong support for slow release technology, including tax incentives and education programs and field trials for farmers. In this quarter, the China government announced their goal of doubling per capita disposable income of rural residents by 2020. Hanfeng's slow release fertilizer can play a major role in increasing farming income and productivity," added Mr. Yu.

Business and Operational Highlights

- The Company completed construction on its dedicated railway spur connecting Hanfeng's Heilongjiang facility (currently 450,000 tpa annual designed capacity) directly with the national railway along the Russian boarder. Hanfeng expects approximately $1.1 million of annual savings in time and cost of shipping and handling. The railway spur will become fully operational in November 2008.

- Construction of the 100,000 TPA Polymer Coated Urea (PCU) 50/50 JV plant on the site of Shandong Mingshui Great Chemical Group ("Minghua") began in the third quarter. This production plant will utilize Hanfeng's patented technology and provide significant product support to Hanfeng's distribution network in this region. The budget for the project is estimated to be $8.9 million (RMB 60 million). The project was originally scheduled to be completed in April 2009, however the target date has revised to July 2009 due to a delay in receiving approval for the business license by the government.

- The detailed feasibility study for Hanfeng's 200,000 TPA joint venture slow release NPK production facility in Surabaya, Indonesia is currently underway. The preliminary estimated budget for this project is $30 million, with Hanfeng's joint venture interest equal to 34%. Construction is expected to commence in January, subject to the completion of the feasibility study and final budget. Construction and commissioning is expected to take up to 12 months to complete.

- Hanfeng was selected to help the Chinese government set up national product standards for Urea Formaldehyde Slow Release Fertilizer (UF) and related UF Products. National standards are the tool used by the Chinese government to discipline the market and protect farmers from inferior or unsafe products. The first time Hanfeng helped the Chinese government set national standards was in 2007 for sulfur coated urea (SCU) and related products.

- The Company secured a three-year potash supply with a distributor who has one of the 25 import licenses in China to import directly from JCS Silvinit, one of the two largest Russian potash producers. The contract initiated in July 2008 with 100,000 tonnes in the first year, and allows for 50,000 tonne annual increases each year through July 2011. The 100,000 tonne supply will satisfy most of Hanfeng's current slow release NPK production requirement.

- The 50,000 tpa SCU 50/50 JV plant on the site of Anhui Linquan Industry Chemical Co., Ltd. is still waiting for government environmental approval of the existing plant before construction can begin. Recently China has adopted very stringent approval processes for producers in order to better control economic growth and environmental issues.

- Hanfeng has established sales offices in 5 key regions of China, including Harbin (for Heilongjiang, Jilin and Liaoning provinces in the Northeast of China), Xi'an (Shanxi province), Beijing, Weifang (Shandong province) and Huizhou (Guangdong province). The Company is currently selecting county level retailers around these regions as well as identifying conventional fertilizer producers with blending capabilities. The total fertilizer demand in these five regions is estimated at 40 million tonnes annually. Hanfeng plans to roll out its distribution network starting in the spring season of 2009.

- Hanfeng received approval for its Normal Course Issuer Bid (NCIB) from the TSX. Through the facilities of the TSX over the next 12 months the Company can, if considered advisable, purchase up to an aggregate of 3,753,791 common shares (approximately 10% of Hanfeng's current public float as defined in the by-laws, regulations and policies of the TSX). This will be the Company's first NCIB and there have been no previous purchases by Hanfeng of its common shares. The Company's cash on hand as well as cash from operations will fund the NCIB program, as well as continue to support Hanfeng's expansion and growth opportunities.

Summary Financial Results
For the 9 months For the 3 months
ended Sept 30 ended Sept 30
(in thousands of $Cdn ------------------------------------------------
except per share data) 2008 2007 change 2008 2007 Change
Sales 191,671 86,688 121% 68,141 31,642 115%
Gross profit 31,501 16,307 93% 10,035 5,486 83%
Net income 12,643 8,189 4,725 73%
- -
Net earnings 23,081 12,643 83% 8,189 4,725 73%
Basic EPS 0.38 0.23 $0.15 0.13 0.08 $0.05
Diluted EPS 0.37 0.22 $0.15 0.13 0.08 $0.05
Weighted average number
of shares (in millions
of shares)
Basic 61.4 56.1 9.4% 61.4 61.2 0.3%
Fully Diluted 61.8 56.6 9.2% 61.8 61.8 0

Balance Sheet Highlights
(In thousand except for ratios) September 30, 2008 December 31, 2007
Current ratio (i) 5.0 : 1 3.8 : 1
Cash & cash equivalents 36,521 28,690
Working capital 114,507 91,089
Total assets 246,637 207,641
Total debt 28,896 32,793
Loans payable 21,371 26,383
Total equity 217,741 174,848
Debt / Equity (ii) 13% 19%
(i) Current ratio equals Current Assets / Current Liabilities
(ii) Debt to Equity equals Total Debt / Total Equity

1- EBITDA is a non-GAAP financial measure. Hanfeng calculates EBITDA by
adding (1) net income, (2) interest expense reported on the income
statements (or deducting interest income), (3) depreciation expense reported
as part of cost of goods sold on the income statements, (4) depreciation
expense reported as a line item on the income statements and (5) income tax
expense reported on the income statements.

Hanfeng Evergreen Inc. will host a conference call to discuss its third quarter 2008 financial results. Ms. Madeline Yu, CFO and Robert Beutel, Chairman of the Board, will host the call.

Date: Thursday, November 13, 2008
Time: 10:00 am Eastern
Dial In Number: 416-641-6136 or 1 866-299-8690
Taped Replay: 416-695-5800 or 1 800-408-3053 (available for 7 days)
Taped Replay Passcode: 3274180

Live webcast link: http://events.onlinebroadcasting.com/hanfeng/111308/index.php

About Hanfeng Evergreen Inc.

Hanfeng is the largest producer of slow and controlled release fertilizers in China. It was 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.

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