Migao Corporation
TSX : MGO

Migao Corporation

February 14, 2014 07:43 ET

Migao Reports Fiscal 2014 Third Quarter Financial Results

TORONTO, ONTARIO--(Marketwired - Feb. 14, 2014) - Migao Corporation (TSX:MGO) ("Migao" or the "Company"), a China-based specialty potash fertilizer producer, today reported financial results for the three and nine -month periods ended December 31, 2013.

Revenues were $73.2 million for the third quarter of fiscal 2014, representing an increase of $19.4 million from the same period one year ago and an increase of $40.4 million compared to the recent second quarter revenues of $32.8 million. The increase in revenue is primarily a result of higher sales volumes in potassium sulphate, hydrochloric acid, potassium chloride (direct sale) and compounds fertilizers during the third quarter of fiscal 2014. The effects of higher sales volume are partially offset by lower average selling prices of all products across the board except for potassium sulphate and hydrochloric acid due to recent market recovery for these products.

Gross loss was higher at $(4.2) million for the current quarter compared to $1.1 million of gross profit for the same period last year predominately as a result of $7.9 million of write-down primarily on potassium chloride raw materials recognized in the current quarter. The inventory charge is mainly related to the portion of potassium chloride expected to be disposed of through direct sale later at the current prevailing market prices. Migao recorded positive gross margins from the sales of all its finished goods in the current quarter. Excluding the $7.9 million inventory charge, Migao would have a gross profit of $3.7 million in the third quarter of fiscal 2014. Migao's business is significantly impacted by the Chinese potash market. Migao doesn't expect to see further significant potash price declines as the potash prices have bottomed in many markets around world according to the latest market analysis report. However, Migao is unable to predict the market price trend accurately.

For the current quarter, Migao reported a net loss of $11.9 million or $(0.23) per basic share as compared to net loss of $4.5 million or $(0.09) per basic share for the same period one year ago. The increasing net loss continues to be a result of declining potash prices following the breakup of BPC, weakness in the hydrochloric acid market and overall lower average selling prices.

SUMMARY FINANCIAL RESULTS
In $'000 except per share data
3 months ended 3 months ended YTD YTD
December 31, 2013 December 31, 2012 fiscal 2014 fiscal 2013
Sales 73,192 53,801 135,378 95,540
Gross (loss) profit (4,217 ) 1,090 (9,836 ) 2,368
Gross (loss) profit (% of revenue) (5.8 %) 2.0 % (7.3 %) 2.5 %
Net loss (11,911 ) (4,514 ) (35,581 ) (16,532 )
EBITDA (10,560 ) (1,140 ) (28,157 ) (7,542 )
(loss) earnings per share (basic and diluted) (0.23 ) (0.09 ) (0.68 ) (0.31 )
Weighted average number of shares
(in millions of shares)
Basic 52.5 52.5 52.5 52.5
Diluted 52.5 52.5 52.5 52.5
Balance Sheet Highlights
In $'000 except ratio
December 31, March 31,
2013 2013
Current ratio 1.50:1 1.80:1
Cash, cash equivalents and restricted cash 128,102 77,040
Working capital 158,346 183,037
Total assets 623,366 542,804
Total liabilities 322,405 234,363
Total equity 300,961 308,441
Long term debt to equity ratio 0.01:1 0.01:1

For the nine months ended December 31, 2013 Migao reported revenues of $135.4 million as compared to revenues of $95.5 million for the nine-month period ended December 31, 2012. Migao reported a net loss of $35.6 million or $(0.68) per basic share for the most recent nine-month period as compared to net loss of $16.5 million or $(0.31) per basic share for the same nine-month period one year ago.

At the end of the period, Migao had $76.1 million (195,639 tonnes) of potassium chloride inventory with an average delivered price of $389 per tonne and $26.4 million of various raw materials for compound fertilizer. In addition, during the quarter, Migao sold 45,208 tonnes of potassium nitrate, 52,097 tonnes of potassium sulphate, 28,406 tonnes of compound fertilizers, 3,000 tonnes of specialty compound fertilizer (direct sale), 10,535 tonnes of potassium chloride, 56,508 tonnes of hydrochloric acid, 10,413 tonnes of ammonium chloride, and at the end of the period, Migao had $57.9 million (118,786 tonnes) of finished goods inventory on hand, including co-products.

Cash was $10.4 million as at December 31, 2013, compared to $10.2 million as at March 31, 2013. Cash increased mainly as a result of combined effects of $24.8 million cash inflow from operations, $15.5 million spent on purchase of plant and equipment, land use rights and investments in a joint venture, as well as net loan repayments of $10.2 million during the nine-month period ended December 31, 2013.

At December 31, 2013, Migao reported cash and restricted cash of $128.1 million and working capital of $158.3 million.

In January of 2014, Migao entered an agreement with The Export-import Bank of China (the "TEIBC") for a one year bank loan of $11.8 million (USD11 million) for working capital purpose and a credit facility of $15.3 million (RMB87 million) with maturity period of one year. The interest rate is set as six months LIBOR plus 250 basis points. A third party provides corporate guarantee on this bank loan and credit facility and Migao paid guarantee fees at 2.7% of outstanding bank loan and credit facility balances.

Migao's financial statements and MD&A have been filed on SEDAR and will be available at www.sedar.com.

About Migao

Migao Corporation, through its wholly owned subsidiaries, owns and operates fertilizer production plants in various strategic locations across China for the production and sale of specialty potash fertilizer (potassium nitrate and potassium sulphate) to China's agricultural market. Migao Corporation is subject to, and complies with strict government regulations that govern safety, quality and environmental protection. Migao's Sichuan facility is ISO 14001 certified, an international environmental management standard. Please visit www.migaocorp.com for further information.

USE OF NON-GAAP MEASURES

Certain non-GAAP measures referenced in this news release have no standardized meaning under International Financial Reporting Standards ("IFRS") and, therefore, are unlikely to be comparable to similar measures presented by other issuers. Where we reference non-GAAP measures, we provide definitions. For example, EBITDA is commonly defined as earnings before interest, taxes, depreciation and amortization. EBITDA is most directly comparable to the GAAP measure operating income or loss, except that depreciation and amortization of plant assets are included in measuring operating income or loss, but depreciation and amortization expenses are excluded in measuring EBITDA. In Migao's earnings releases, consolidated financial statements and MD&As, unless otherwise noted, all financial data is prepared in accordance with IFRS.

CAUTION REGARDING FORWARD-LOOKING STATEMENTS

This news release may include forward-looking statements within the meaning of certain securities laws, including the "safe harbour" provisions of the Securities Act (Ontario) and other provincial securities laws in Canada. These forward-looking statements include, among others, statements with respect to our objectives and goals, and strategies to achieve those objectives and goals, as well as statements with respect to our beliefs, plans, objectives, expectations, anticipations, estimates and intentions. The words "may", "will", "could", "should", "would", "suspect", "outlook", "believe", "plan", "anticipate", "estimate", "expect", "intend", "forecast", "objective", and "continue" (or the negative or grammatical variations thereof), and words and expressions of similar meaning, are intended to identify forward-looking statements.

By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, which give rise to the possibility that predictions, forecasts, projections and other forward-looking statements will not be achieved. Certain material factors or assumptions are applied in making forward-looking statements and actual results, performance or achievements may differ materially from those expressed or implied in such statements. We caution readers not to place undue reliance on forward-looking statements as a number of important factors, many of which are beyond our control, could cause actual results, performance or achievements to differ materially from the beliefs, plans, objectives, expectations, anticipations, estimates and intentions expressed in such forward-looking statements. These factors that relate to our company include, but are not limited to: risks related to raw materials; execution of the business plan; expansion plans; dependence on key personnel; key relationships; dependence on key customers; dependence on key suppliers; competition; market factors and volatility of commodity prices; environmental risks and hazards; operating risks; proprietary rights; infrastructure; future capital requirements; technical substitution; exchange rate fluctuations; insurance; foreign operations; tobacco industry considerations; weather conditions and natural disasters; control by management; seasonality; dividends; conflicts of interest; global financial conditions; and the implementation of the Labour Contract Law in the People's Republic of China in 2008. In addition to the foregoing risk factors, there are also risks related to doing business in China which include, but are not limited to: state ownership; government sector intervention; foreign investment; repatriation of profit and currency conversion; tax; shareholders' rights and enforcement of judgements; developing legal system; protection of intellectual property rights; permits and business licenses; appropriation; and availability of land. Should one or more of these factors materialize, or should our estimates or underlying assumptions prove incorrect, actual results, performance or achievements may vary materially from those described in forward-looking statements.

We caution that the foregoing list of important factors that may affect our future results, performance or achievements is not exhaustive. When reviewing our forward-looking statements, readers should carefully consider the foregoing factors and other uncertainties and potential events. Additional information about factors that may cause actual results to differ materially from expectations, and about material factors or assumptions applied in making forward-looking statements, may be found under the "Risk Factors" sections in our Annual Information Form and annual MD&A and elsewhere in our filings with Canadian securities regulatory authorities. Except as required by Canadian securities laws, we do not undertake to update any forward-looking statements, whether written or oral, that may be made from time to time by us or on our behalf; such statements speak only as of the date made. We cannot assure readers that actual results, performance and achievements will be consistent with these forward-looking statements, and the differences may be material. The forward-looking statements included herein are expressly qualified in their entirety by this cautionary language.

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