Sino-Forest Reports Double-Digit Growth in Fourth Quarter & Annual 2010 Results

Mar 15, 2011, 06:13 ET from Sino-Forest Corporation

TORONTO, March 15, 2011 /PRNewswire-FirstCall/ - Sino-Forest Corporation ("Sino-Forest") (TSX:TRE) announced its financial results today for the fourth quarter and full year ended December 31, 2010. All amounts in this release are expressed in U.S. dollars unless otherwise indicated.

Financial Highlights for Fourth Quarter 2010 compared to 2009:

  • Revenue increased 63% to $767 million
  • EBITDA increased 55% to $553 million
  • Diluted Earnings Per Share rose 32% to $0.65
  • Net Income increased 52% to $171 million

Financial and Operating Highlights for Full Year 2010 compared to 2009:

  • Revenue reached nearly $2 billion after increasing 55%
  • Diluted Earnings Per Share rose 16% to $1.60 after taking into account a $0.09 non-cash, one-time tax charge related to prior years
  • Annual volume of plantation fibre sold increased 24% to 17.6 million cubic metres (m3)
  • Plantation area under management increased 54% to 788,700 hectares in the PRC at year-end
  • Cash on hand increased 11% to $1.2 billion
     
(US$ millions, except margins and per share amounts) Fourth Quarter
ended December 31
Twelve months
ended December 31
2010 2009 Change 2010 2009 Change
$ $ % $ $ %
Revenue 767.3 469.6 63 1,923.5 1,238.2 55
Gross Profit(1) 232.1 148.0 57 671.5 440.4 53
Gross Profit Margin 30.2% 31.5% (1.3% pt) 34.9% 35.6% (0.7% pt)
EBITDA(2) 553.1 356.5 55 1,328.3 898.8 48
Net Income 170.9 112.7 52 395.4 286.4 38
Diluted Earnings Per Share 0.65 0.49 32 1.60 1.38 16
Cash Flow From Operating Activities 364.9 226.1 61 840.1 784.5 7

Notes (1) and (2) are at the end of this release

Allen Chan, Chairman and CEO of Sino-Forest said, "We are very pleased to report double-digit growth for our top and bottom lines in both the fourth quarter and full year 2010. Infrastructure and housing construction activities and the rapid pace of urbanization in China continued to drive demand for our wood fibre, especially in inland provinces where the majority of our operations are based. With strong fibre demand and a growing portfolio of plantations under management, we sold 17.6 million m3 of fibre last year, thereby surpassing the original goal of 17 million m3 we initially set for the 2011 fiscal year."

Mr. Chan added, "Our operating and financial highlights last year also included: acquiring approximately 147,000 hectares of plantations in Anhui and Jiangxi Provinces, the signing of a sixth master agreement in Guizhou Province, increasing our ownership stake in Greenheart Group to approximately 60%, and raising $600 million from a senior notes offering.  Moreover, we remained on track with executing our master agreements by acquiring approximately 50% of the 1.3 million hectares covered by our master agreements, and commenced harvesting and replanting in Hunan and Guangxi Provinces."

Mr. Chan continued, "With $1.2 billion of cash on hand, we plan to continue expanding our geographical reach into new provinces (central and western regions of China), where we will add 300,000 hectares of mature saleable trees to our portfolio of commercial plantations. In fact, as part of this 300,000 hectares acquisition, we signed a memorandum of understanding this week with the intention to acquire 150,000 hectares of readily harvestable commercial plantations, details of which will be announced shortly."

Business Segment Highlights

The following table presents a breakdown of revenues derived from our key business segments:

     
  Fourth Quarter ended
December 31, 2010
Fourth Quarter ended
December 31, 2009
$'000 % $'000 %
Wood Fibre Operations        
  Plantation Fibre 581,432 75.8 371,497 79.1
  Trading of Wood Logs 163,064 21.2 82,992 17.7
Manufacturing and Other Operations 22,777 3.0 15,081 3.2
Total 767,273 100.0 469,570 100.0

Total revenue for the fourth quarter 2010 increased 63% to $767.3 million, which was mainly due to the increase in sales from our wood fibre operations.  For the full year 2010, total revenue increased 55% to $1,923.5 million, mainly attributable to an increase in sales of $447 million (up 47%) in plantation fibre and $216 million (up 91%) in trading of logs and other wood products.

Wood Fibre Operations
Plantation Fibre

                 
  Fourth Quarter ended December 31, 2010 Fourth Quarter ended December 31, 2009
Hectares Volume
Sold
Av.
price
per m3
Total
Revenue
Hectares Volume
Sold
Av.
price
per m3
Total
Revenue
    '000 m3 $ $'000   '000 m3 $ $'000
Standing timber 10,612 1,561 63 97,953 12,435 1,719 60 103,814
Logs 47,658 5,789 84 483,479 33,286 3,506 76 267,683
Total 58,270 7,350 79 581,432 45,721 5,225 71 371,497

Revenue from sales of plantation fibre in the fourth quarter increased 57% to $581.4 million, mainly due to an 11% increase in the average selling price and a 41% increase in volume of fibre sold. 

For the full year 2010, revenue from sales of plantation fibre increased 47% to $1.4 billion, compared to $954.2 million in 2009. This was due to a 19% increase in average selling price and a 24% increase in volume of fibre sold during the year. The increase in the average selling price of standing timber in 2010 was mainly due to a difference in sales mix.  The average selling price of pine and Chinese fir in 2010 was $66 per m3, compared to $62 per m3 in 2009.  In addition, we sold broadleaf in Yunnan as standing timber at an average selling price of $102 per m3 in 2010, compared to $64 per m3 in 2009.  The revenue from broadleaf in Yunnan accounted for approximately 46% of standing timber revenue in 2010, compared to 5% in 2009.

In the fourth quarter 2010, under our master agreements, we sold approximately 38,500 hectares of plantation trees, mainly in Hunan and Guangxi Provinces.  For full year 2010, we sold approximately 64,200 hectares of trees, mainly in Yunnan, Hunan and Guangxi Provinces. Acquisitions under the master agreements for the full year amounted to approximately 213,900 hectares of plantation trees.

At year end 2010, the total area of plantations under management was 788,700 hectares in the PRC, up 54% from 2009. 

Trading of Wood Logs

Revenue from trading of imported and domestic logs and other wood products increased 97% to $163.1 million in the fourth quarter 2010, compared to $83.0 million in the same period last year. This increase was primarily due to higher volume of Russian logs sold.  For the full year, revenue increased 91% to $454.0 million in 2010, compared to $237.9 million in 2009.

Manufacturing and Other Operations

Revenue from manufacturing and other operations increased 51% to $22.8 million in the fourth quarter 2010, and increased 48% to $68.3 million for the full year 2010.  The increase was mainly due to the increase in revenue from the sales of our engineered-wood flooring products and the sales of recomposed wood products from our newly acquired HOMIX operations.

Gross Profit

Gross profit increased 57% to $232.1 million for the fourth quarter 2010 and increased 53% to $671.5 million for the full year 2010. Gross profit margin, being gross profit expressed as a percentage of revenue, decreased 1.3% points to 30.2% in Q4 2010, and decreased 0.7% points to 34.9% for full year 2010.

Wood Fibre Operations Gross Profit Margin

Plantation Fibre: Gross profit margin from sales of standing timber for the fourth quarter increased to 48% or $30 per m3 in 2010, compared to 46% or $28 per m3 in the same period in 2009. The gross profit margin from sales of logs was 39% or $32 per m3 in Q4 2010, compared to 35% or $27 per m3 in the same period in 2009. These increases reflected overall increases in the average selling price of logs in the fourth quarter 2010.

For the full year 2010, gross profit margin from sales of standing timber increased to 55% or $42 per m3, compared to 50% or $31 per m3 in 2009. The gross profit margin from sales of logs was 40% or $33 per m3 in 2010, compared to 36% or $28 per m3 in 2009, mainly as a result of an increase in the average selling price of logs in 2010.

Trading of Wood Logs: Gross profit margin from this segment decreased by 1.2% points to 4.7% in Q4 2010. For the full year 2010, gross profit margin decreased by 0.5% point to 5.2%.

Manufacturing and Other Operations Gross Profit Margin

Gross profit margin from this segment increased to 11.9% in the fourth quarter 2010 compared to 9.8% in the same period last year.  For the full year 2010, gross profit margin increased to 11.2% compared to 7.4% in 2009, mainly due to improvement in engineered-wood flooring operations.

Selling, General and Administrative Expenses

Our SG&A expenses for the fourth quarter 2010 increased 57% to $30 million, compared to $19.1 million in same period 2009. For the full year 2010, our SG&A expenses increased 40% to $89.7 million, compared to $64.0 million in 2009. The increase was primarily due to increased staff costs, additional leasing charges, and incremental costs of newly acquired subsidiaries in 2010 including Mandra Forestry and Greenheart Group.

Net Income

As a result of the foregoing, net income for the fourth quarter 2010 increased 52% to $170.9 million. For the full year 2010 net income increased 38% to $395.4 million, compared to $286.4 million in the previous year.  Overall net income as a percentage of revenue decreased 1.7% points to 22% for the fourth quarter 2010 and decreased 2.5% points to 21% for the full year 2010.

Cash flows from operating activities of continuing operations

Net cash provided from operating activities increased to $364.9 million for the fourth quarter 2010 from $226.1 million in same period 2009.  For the full year 2010, net cash provided from operating activities increased to $840.1 million, compared to $784.5 million in 2009. The increase was due to an increase in cash provided by operations, offset by the increase in cash used in working capital that mainly resulted from an increase of accounts receivable in 2010.

Capital Expenditures

     
  Three months ended December 31 Twelve months ended December 31
  2010 2009 2010 2009
  Hectare $'m Hectare $'m Hectare $'m Hectare $'m

Tree acquisition

99,323 475.9 76,431 338.6 244,976 1,328.0 255,503 1,016.4

Tree acquisition - acq'n of subsidiaries

  -   - 86,786 283.1   -

Tree and freehold land acquisitions - New Zealand

11,000 70.5   - 11,000 70.5   -

Re-planting and maintenance of plantations

  17.8   8.1   42.7   36.3

Panel manufacturing and others

  2.2   8.3   19.7   19.1

Panel manufacturing & others - acq'n of subsidiaries

  -   -   10.2   -

Total

  566.4   355.0   1,754.2   1,071.8

In 2011, management expects capital expenditures will be approximately $1.9 billion for plantation acquisitions, replanting and maintenance, and approximately $25.0 million for the development of manufacturing facilities integrated with our plantation operations.  These projected expenditures will be adjusted as necessary based on several factors, including some that may be beyond our control such as changes in the macroeconomic environment in the PRC, Suriname and New Zealand.

Pöyry Valuation Update

Sino-Forest has engaged Pöyry Consulting, an international consultancy firm with forestry expertise, to provide an annual independent valuation of our forest plantation assets. Pöyry is currently in the process of completing the 2010 year end valuation report which is expected to be finalized by the end of April 2011.

However, Pöyry has changed its disclosure policy so as to no longer allow its clients to make its detailed valuation reports publicly available.  

In correspondence received from Pöyry, Doug Parsonson, Vice-President, Asia-Pacific Management Consulting said, "An internal risk assessment has been conducted throughout Pöyry's Management Consulting Business Group in 2010. On the basis of this risk assessment, it has inter alia been resolved throughout the business group that Pöyry's valuation reports (and similar) may no longer be made available in the public domain for certain markets. Specific markets identified in the initial assessment include North America (USA and Canada), Australia, and Mainland China.  In accordance with this group internal assessment, the reports covering the valuation services performed by Pöyry for Sino-Forest Corporation may no longer be posted on the internet as had been the practice, or in any other manner be made publicly available."

Pöyry and Sino-Forest have separately agreed upon the manner in which parts of Pöyry's valuation report may, on a non-reliance basis, be communicated to Sino-Forest's stakeholders.

Outlook

China's National People's Congress meeting, which was concluded on March 14, 2011, laid out the country's Twelfth Five-year Plan (2011-2015) ("Plan"). The main policy themes and guidelines of this Plan include the taming of inflation, rebalancing of economic growth, improvement of peoples' livelihoods through income distribution, faster income growth, social security improvements, construction of affordable housing, and acceleration of inland and rural region development.  Allen Chan said, "We remain very optimistic about the potential for China's domestic growth and demand for wood fibre." In order to cultivate and supply an increasing share of the country's wood fibre, Sino-Forest will continue to focus on "planting trees for China". At the same time, our subsidiary Greenheart Group, will focus on "importing foreign fibre into China in a sustainable and environment-friendly manner".

We are committed to running sustainable, long-term plantation operations in China. To support our long-term goal, in the third quarter 2010, we announced our plans to plant 200,000 hectares by 2012 with our scientifically advanced seedlings, of which we anticipate planting 80,000 to 100,000 hectares in 2011. Allen Chan concluded, "We are confident in our ability to reach this significant target, given our 16-year track record, scientific advantages and plantation silviculture expertise."

Notice of Conference Call

Sino-Forest will hold a conference call for analysts and investors to discuss its fourth quarter and full-year 2010 results on Tuesday, March 15, 2011 at 8:30 am EST / 8:30 pm HKT.  To participate, please dial:

North America
Tel: 647-427-7450
Toll-free: 888-231-8191
Hong Kong
Tel: +1-647-427-7450
Toll-free: 800-901-563
Singapore
Tel: +1-647-427-7450
Toll-free: 800-101-2564

Alternatively, to listen to the live webcast and replay in a listen-only mode, go to our website under "Investor Relations - Earnings Releases" or click on the following link: http://www.sinoforest.com/earningsreleases.asp.

About Sino-Forest Corporation

Sino-Forest Corporation is a leading commercial forest plantation operator in China. Its principal businesses include the ownership and management of forest plantation trees, the sale of standing timber and wood logs, and the complementary manufacturing of downstream engineered-wood products. Sino-Forest also holds a majority interest in Greenheart Group Limited, a Hong Kong-listed investment holding company (HKSE: 00094) with operations based in Suriname, South America and New Zealand. The company is involved in responsible and sustainable log harvesting, lumber processing and sales and marketing of logs and lumber products to China and other countries around the world. Sino-Forest's common shares are listed on the Toronto Stock Exchange under the symbol TRE since 1995. Learn more at www.sinoforest.com.

Note (1) to the Financial Highlights table: Gross profit for any year / period is defined as total revenue less cost of sales. Gross profit is presented as additional information because we believe that it is a useful measure for certain investors to determine our operating performance. Gross profit is not a recognized term under Canadian GAAP and should not be considered as an alternative to net income as an indicator of our operating performance or any other measure of performance derived in accordance with Canadian GAAP. Because it is not a Canadian GAAP measure, gross profit may not be comparable to similar measures presented by other companies.

Note (2) to the Financial Highlights table: EBITDA for any year / period is defined as income from continuing operations for the period after adding back depreciation and amortization and depletion of timber holdings in cost of sales, for the period. EBITDA is presented as additional information because we believe that it is a useful measure for certain investors to determine our operating cash flow and historical ability to meet debt service and capital expenditure requirements. EBITDA is not a measure of financial performance under Canadian GAAP and should not be considered as an alternative to cash flows from operating activities, a measure of liquidity or an alternative to net income as indicators of our operating performance or any other measures of performance derived in accordance with Canadian GAAP.

Cautionary note: No stock exchange or regulatory authority has approved or disapproved of information contained herein. Certain information included in this news release is forward-looking and is subject to important risks and uncertainties. When used in this news release, the words "believe", "intend", "estimate", "expect", "plan" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such words.  These forward-looking statements are based on current expectations. The results or events predicted in these statements may differ materially from actual results or events and are no guarantees of future performance of Sino-Forest.  Factors which could cause results or events to differ from current expectations include, among other things: our ability to acquire rights to additional standing timber, our ability to meet our expected plantation yields, the cyclical nature of the forest products industry and price fluctuation in and the demand and supply of logs, our reliance on joint venture partners, authorized intermediaries, key customers, suppliers and third party service providers, our ability to operate our production facilities on a profitable basis, changes in currency exchange rates, interest rates, and the PRC, Suriname and New Zealand's economic, political and social conditions and government policy, and stock market volatility, and other factors not currently viewed as material that could cause actual results to differ materially from those described in the forwarding-looking statements. For additional information with respect to certain of these and other factors, see the reports filed by Sino-Forest Corporation with applicable Canadian securities administrators. Sino-Forest Corporation disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

 

CONSOLIDATED STATEMENTS OF INCOME AND
RETAINED EARNINGS
[Expressed in thousands of United States dollars, except for earnings per share information]
     
Years ended December 31,  2010  2009
  $  $
Revenue  1,923,536  1,238,185
Costs and expenses    
Cost of sales  1,252,023  797,800
Selling, general and administration  89,712  63,980
Depreciation and amortization  5,145  4,693
  1,346,880  866,473
Income from operations before the undernoted   576,656  371,712
Interest expense  (128,124)  (70,977)
Interest income  10,609  9,691
Exchange losses  (3,086)  (4,958)
Loss on changes in fair value of financial instruments  (4,419)  (417)
Other income   2,932  1,600
Income before income taxes  454,568  306,651
Provision for income taxes   (70,644)  (27,864)
Net income from continuing operations  383,924  278,787
Net income from discontinued operations   8,179  7,583
Net income before non-controlling interests   392,103  286,370
Non-controlling interests  3,323  -
Net income for the year  395,426  286,370
Earnings per share    
Basic  1.62  1.39
Diluted  1.60  1.38
Earnings per share from continuing operations    
Basic  1.59  1.35
Diluted  1.57  1.34
Earnings per share from discontinued operations    
Basic  0.03  0.04
Diluted  0.03  0.04
Retained earnings    
Retained earnings, beginning of year  1,054,257  769,557
Net income for the year   395,426  286,370
Transfer to statutory reserve  (318)  (1,670)
Retained earnings, end of year  1,449,365  1,054,257


 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
[Expressed in thousands of United States dollars]
 
Years ended December 31,     2010 2009
      $ $

Net income for the year

    395,426 286,370
Other comprehensive income (loss):        
  Unrealized gains on foreign currency translation of self-sustaining operations     97,030 3,819
  Unrealized gains on financial assets designated as available-for-sale     2,490 8,498
  Reversal of unrealized gains on financial assets designated as available-for-sale     (8,756) -
Other comprehensive income     90,764 12,317

Comprehensive income

    486,190 298,687


 
CONSOLIDATED BALANCE SHEETS
[Expressed in thousands of United States dollars]
     
As at December 31,   2010  2009
  $
ASSETS    
Current    
Cash and cash equivalents   1,223,352  1,102,366
Short-term deposits   32,101  70,387
Accounts receivable   636,626  282,306
Inventories   61,978  45,978
Prepaid expenses and other   125,238  54,747
Convertible bonds    -  29,446
Assets of discontinued operations   -  1,531
Total current assets   2,079,295  1,586,761
Timber holdings   3,122,517  2,183,489
Capital assets, net   113,150  77,377
Intangible assets   139,910  636
Other assets   274,161  115,636
  5,729,033  3,963,899
LIABILITIES AND SHAREHOLDERS' EQUITY    
Current    
Bank indebtedness   153,959  103,991
Current portion of long-term debt   87,670  -
Accounts payable and accrued liabilities   499,854  250,287
Income taxes payable   10,602  7,346
Liabilities of discontinued operations   3,699  12,156
Total current liabilities   755,784  373,780
Long-term debt   1,659,682  925,466
Future income tax liabilities   63,906  -
Total liabilities   2,479,372  1,299,246
Non-controlling interests   51,540  - 
Shareholders' equity    
Equity portion of convertible senior notes   158,883  158,883
Share capital   1,261,300  1,213,495
Contributed surplus   11,673  12,200
Accumulated other comprehensive income   314,912  224,148
Statutory reserve   1,988  1,670
Retained earnings    1,449,365  1,054,257
Total shareholders' equity   3,198,121  2,664,653
  5,729,033  3,963,899
Commitments and Contingencies


 
CONSOLIDATED STATEMENTS OF CASH FLOWS
[Expressed in thousands of United States dollars]
     
Years ended December 31,  2010  2009
  $  $
CASH FLOWS FROM OPERATING ACTIVITIES    
Net income for the year  395,426  286,370
Net income from discontinued operations  (8,179)  (7,583)
Add (deduct) items not affecting cash    
  Depletion of timber holdings included in cost of sales  746,474  522,397
  Depreciation and amortization  7,919  4,693
  Accretion of convertible senior notes  26,555  13,689
  Stock-based compensation  3,573  4,601
  Loss on changes in fair value of financial instruments  4,419  417
  Unrealized exchange (gains) losses   (2,089)  1,880
  Other  (511)  (751)
  1,173,587  825,713
Net change in non-cash working capital balances  (333,502)  (41,196)
Cash flows from operating activities of continuing operations  840,085  784,517
Cash flows used in operating activities of discontinued operations (562) (826)
CASH FLOWS USED IN INVESTING ACTIVITIES    
Additions to timber holdings  (1,358,878)  (1,032,009)
Increase in other assets  (43,331)  (38,041)
Additions to capital assets  (25,240)  (11,649)
Decrease (increase) in non-pledged short-term deposits  21,872  (10,942)
Business acquisition, net of cash acquired of $63,829,000  2,139  -
Proceeds from disposal of capital assets  296  216
Acquisition of convertible bonds  -  (200)
Other  75  -
Cash flows used in investing activities  (1,403,067)  (1,092,625)
Cash flows from investing activities of discontinued operations 1,478 24,120
CASH FLOWS FROM FINANCING ACTIVITIES    
Increase in long-term debt  624,750  460,000
Increase in bank indebtedness  47,962  36,534
Decrease (increase) in pledged short-term deposits  17,255  (13,633)
Issuance of shares, net of issue costs  8,555  652,474
Proceeds from exercise of share options of a subsidiary   3,079  -
Payment of financing costs  (20,328)  (27,591)
Repayment of long-term debt  (530)  (150,000)
Payment on derivative financial instrument  -  (5,781)
Cash flows from financing activities  680,743  952,003
Cash flows used in financing activities of discontinued operations  -  (5,972)
Effect of exchange rate changes on cash and cash equivalents  2,309  (22)
Net increase in cash and cash equivalents  120,986  661,195
Cash and cash equivalents, beginning of year  1,102,366  441,171
Cash and cash equivalents, end of year  1,223,352  1,102,366
Supplemental cash flow information    
Cash payment for interest charged to income  82,447  52,363
Interest received  5,569  3,723


SOURCE Sino-Forest Corporation