Migao Corporation
TSX : MGO

Migao Corporation

November 14, 2014 09:00 ET

Migao Reports Fiscal 2015 Second Quarter Financial Results

TORONTO, ONTARIO--(Marketwired - Nov. 14, 2014) - Migao Corporation (TSX:MGO), a China-based specialty potash fertilizer producer, today reported financial results for the three and six months periods ended September 30, 2014.

Migao reported revenues of $51.0 million for the second quarter ended September 30, 2014, representing $18.3 million (56%) of increase from $32.8 million for the quarter ended September 30, 2013. The revenue increase for the quarter ended September 30, 2014 is mainly due to higher sales of potassium sulphate and hydrochloric acid primarily as a result of higher sales volumes for these products, coupled with higher average selling price for potassium sulphate during the quarter ended September 30, 2014 compared with same quarter one year ago. Strong market demands for potassium sulphate continued into the second quarter of fiscal 2015. The above sales increases were partly offset by aggregate $13.4 million of decreases in sales of potassium chloride (direct sales), potassium nitrate as well as ammonium chloride. The sales decreases in these products were mainly caused by lower sales volume as well as lower average selling prices for these products during the current quarter as compared with the same period last year. Due to seasonality reason sales of potassium nitrate and compound fertilizers were minimal in the second quarter. The appreciation of ChineseYuan (RMB) against Canadian dollar also contributed to higher sales amount reported in the second quarter of fiscal 2015.

Gross profit was $7.8 million for the second quarter of fiscal 2015, compared with gross loss of $7.6 million for the same period one year ago. The increase in gross profit registered during the quarter ended September 30, 2014 was mainly due to higher sales volumes from potassium sulphate and hydrochloric acid, coupled with higher gross profit margins generated from these products during the current quarter as compared with the same period last year. Migao's profitability in the sales of potassium sulphate mainly benefited from the lower raw material prices, favorable PRC potassium sulphate market conditions as a result of strong demands for potassium sulphate and tight market supply as well as the stabilization of global and PRC potash market prices since the past few months. The effects of higher gross profits from sales of potassium sulphate and hydrochloric acid were partially offset by the gross loss from sales of potassium nitrate and ammonium chloride during the current quarter. The PRC agricultural grade potassium nitrate market was negatively affected by the volatilities in the potash prices following the breakup of JSC Belarusian Potash Company in July 2013 and remains very weak. The profitability of Migao's potassium nitrate is also negatively impacted by the rising energy cost especially the cost of the natural gas which accounts for approximately 13% of the production cost of potassium nitrate during the year ended March 31, 2014.

Selling, general and administrative expenses were $7.8 million for the second quarter of fiscal 2015, up by $2.1 million from $5.7 million for the same quarter last year. Finance costs were $2.2 million representing $1.7 million increase from $0.5 million for the same quarter last year.

As a result, for the quarter ended September 30, 2014 Migao reported a net loss of $ 0.3 million or $(0.01) per basic and diluted share, as compared with net loss of $18.5 million or $(0.35) per basic and diluted share for the same quarter last year.

For the six months ended September 30, 2014 Migao reported total revenue of $110.3 million as compared with revenue of $62.2 million for the six months ended September 30, 2013. Migao reported a net income of $0.1 million or $0.01 per basic share for the most recent six-month period as compared with a net loss of $23.7 million or $(0.45) per basic share for the same six-month period one year ago.

For the quarter ended September 30, 2014 average selling price for potassium nitrate was RMB 4,073 ($720) per tonne, RMB3,282 ($580) per tonne for potassium sulphate and RMB1,963 ($347) per tonne for potassium chloride, as compared with RMB 4,462 ($756) per tonne for potassium nitrate, RMB 2,833 ($480) per tonne for potassium sulphate and RMB2,227 ($377) per tonne for potassium chloride same period one year ago.

At September 30, 2014, Migao reported cash and restricted cash of $157.8 million and working capital of $148.8 million.

At the end of the quarter Migao had $175.2 million of inventory, which included $109.3 million (289,250 tonnes) of potassium chloride inventory with an average delivered price of $378 per tonne, and $36.5 million of various other raw materials. Also included in inventory was $28.2 million (110,295 tonnes) of finished goods inventory on hand, including co-products. During the second quarter of fiscal 2015, the Migao sold 2,109 tonnes of potassium nitrate, 74,257 tonnes of potassium sulphate, 16,527 tonnes of potassium chloride (direct sale), 2,244 tonnes of ammonium chloride, and 94,866 tonnes of hydrochloric acid.

Cash and cash equivalents was $34.0 million as at September 30, 2014, compared with $13.8 million as at March 31, 2014. The increase in cash and cash equivalents were mainly combined results of $51.5 million cash inflows from operations, a net $9.0 million of cash used in investing activities mainly because of the $7.0 million of additions in plant and equipment, $3.4 million of payments for land use right deposits and $1.4 million of cash receipts from dissolution of Sichuan Ruigao Logistic Co., Ltd, which Migao used to own 25% equity interests before dissolution, as well as a net $23.1 million of cash used in financing activities primarily because of bank loan and interest repayments of $55.9 million netted off by $32.8 million of cash from new loan drawdowns.

SUMMARY FINANCIAL RESULTS
In $'000 except per share data
3 months ended 3 months ended YTD YTD
September 30, 2014 September 30, 2013 fiscal 2015 fiscal 2014
Revenue 51,033 32,781 110,250 62,186
Gross profit (loss) 7,844 (7,606) 15,496 (5,619)
Gross profit (loss) (% of revenue) 15.4% (23.2%) 14.1% (9.0%)
Net Income (loss) (298) (18,542) 147 (23,670)
EBITDA 3,519 (16,137) 7,971 (17,597)
Income (loss) earnings per share (basic and diluted) (0.01) (0.35) 0.01 (0.45)
Weighted average number of shares
(in millions of shares)
Basic 52.5 52.5 52.5 52.5
Diluted 52.5 52.5 53 52.5
Balance Sheet Highlights
In $'000 except ratio
September 30, 2014 March 31, 2014
Current ratio 1.40:1 1.41:1
Cash, cash equivalents and restricted cash 157,831 152,832
Working capital 148,758 148,287
Total assets 670,649 647,169
Total liabilities 379,658 364,785
Total equity 290,991 282,384
Long term debt to equity ratio 0.01:1 0.01:1

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

Recent developments

Two 120,000 tonne per annum fertilizer pelletizing production lines are currently being constructed by Liaoning Migao and Changchun Migao to cater for the local markets' growing needs for prilled fertilizers. Total capital expenditures for the pelletizing production lines are expected to reach approximately $9 million and the designed capacity for each pelletizing production line is 120,000 tonnes per year. The initial production of the pelletizing line is expected to commence in the third quarter of fiscal 2015.

The existing production facilities in Liaoning Migao and Changchun Migao are capable of producing powdered fertilizers only. Compared with powdered fertilizers, prilled fertilizers, which are referred to when fertilizers are pelletized, tend to have prolonged effects due to slower releasing rates. Therefore they are commonly used in subsoil application. The target customers of prilled fertilizers are plant and vegetable growers and compound fertilizer producers.

Migao recently obtained sales contracts to sell to two European customers approximately 6,000 tonnes of potassium sulphate with total value of USD 4.6 million. The sales orders are expected to be fulfilled in the third quarter of fiscal 2015.

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, Guangdong facility, Liaoning facility, Changchun facility, Zunyi facility and Sichuan SQM Migao joint venture are 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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