Sino-Forest Reports First Quarter 2010 Results
TORONTO, May 12, 2010 /PRNewswire-FirstCall/ - Sino-Forest Corporation ("Sino-Forest") (TSX:TRE) announced its financial results today for the three months ended March 31, 2010. All amounts in this release are expressed in U.S. dollars unless otherwise indicated.
Financial Highlights
- Revenue increased 42%, with $70 million of sales of harvested log and
120% increased in sales from trading of wood logs
- Gross margin averaged $48 per m(3) as sales of standing timber in
Yunnan generated higher gross margins
- Net income rose 86%
- Diluted EPS from continuing operations increased 18% to $0.18 per
share
Three months ended March 31
(US$ millions, except margins and 2010 2009 Change
per share amounts) $ $ %
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Revenue 251.0 177.2 41.6
Gross Profit(1) 95.2 65.5 45.3
Gross Profit Margin 37.9% 37.0% 0.9% pts
EBITDA(2) 146.0 114.9 27.1
Net Income 42.8 23.0 86.0
Diluted Earnings Per Share from
Continuing Operations 0.18 0.15 17.8
Cash Flow From Operating Activities 51.4 167.6 (69.3)
Notes (1) and (2) are at the end of this release
During the first quarter of 2010, we signed our sixth long-term master agreement to acquire fibre in Guizhou Province, and added approximately 155,600 hectares of plantation trees to our portfolio by acquiring Mandra Forestry. The acquisition of HOMIX Limited in the first quarter will strengthen our research and development capabilities, thereby increasing our wood fibre usability and the versatility of our small-diameter plantation logs. We continue to transition toward our integrated plantations model by acquiring trees under our long-term fibre purchase agreements. As at March 31, 2010, approximately 447,700 hectares of trees have been acquired under our long-term agreements. Our aim is to build a strong plantation base for long-term sustainable plantation management.
Allen Chan, Chairman and CEO of Sino-Forest, said, "At the macro-economic level, the Chinese Central Government launched some measures in the beginning of the year to tighten credit lending in order to reduce the risks of speculation and over-heating of property prices, and to slow down new infrastructure investment. However, the Chinese government still intends to build 5.2 million affordable housing units by 2011."
Mr Chan continued, "We are pleased to report strong profits for the first three months of 2010 as we see domestic demand for wood fibre remains for household products and the construction sector. We anticipate that log prices will continue to rebound, especially with the Chinese government's commitment to construct low-income housing."
Business Segment Highlights
Total revenue breakdown for the three months ended March 31, 2010 and 2009:
First Quarter First Quarter
ended March 31, 2010 ended March 31, 2009
$'000 % $'000 %
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Wood Fibre Operations
Plantation Fibre 156,789 62.5 127,968 72.2
Trading of Wood Logs 82,938 33.0 37,758 21.3
Manufacturing and Other
Operations 11,288 4.5 11,508 6.5
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Total 251,015 100.0 177,234 100.0
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Our revenue increased 41.6% from $177.2 million in the three months ended March 31, 2009 to $251.0 million in the same period in 2010. The increase in revenue was mainly due to the increase in sales from our wood fibre operations.
Wood Fibre Operations
Plantation Fibre
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First Quarter ended March 31, 2010
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Vol. of Av. price Total
Hectares fibre sold per m(3) revenue
'000 m(3) $ $'000
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Standing timber 5,391 971 90 86,931
Harvested logs 7,010 890 79 69,858
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Total 12,401 1,861 84 156,789
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First Quarter ended March 31, 2009
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Vol. of Av. price Total
Hectares fibre sold per m(3) revenue
'000 m(3) $ $'000
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Standing timber 15,478 2,125 60 127,968
Harvested logs - - - -
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Total 15,478 2,125 60 127,968
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Revenue from sales of plantation fibre increased 22.5% from $128.0 million in Q1 2009 to $156.8 million in the same period in 2010, mainly due to an increase in the average selling price of standing timber.
The increase in average selling price of standing timber was mainly due to a difference in sales mix. The average selling price of pine and Chinese fir was $61 per m(3) for Q1 2009 while the average selling price for Q1 2010 was $64 per m(3). In addition, we sold fibre in Yunnan as standing timber at an average selling price of $101 per m(3) in Q1 2010 compared to no sales in the same period in 2009. The standing timber plantation sales in Yunnan comprised 84.5% of revenue from standing timber sales in Q1 2010. Standing timber sales comprised 55.4% of total plantation fibre revenue in Q1 2010.
The average sales per hectare increased 52.9% from $8,268 per hectare in Q1 2009 to $12,643 per hectare in the same period in 2010.
Plantation fibre sales comprised 62.5% of total revenue in Q1 2010, compared to 72.2% in the same period in 2009.
Trading of Wood Logs
Revenue from trading of imported and domestic wood products and logs increased 119.7%, from $37.8 million in Q1 2009 to $82.9 million in the same period in 2010. This increase was primarily due to higher volume of Russian wood logs sold.
Sales of trading of wood logs comprised 33.0% of total revenue in Q1 2010, compared to 21.3% of total revenue in the same period in 2009.
Manufacturing and Other Operations Revenue
Revenue from manufacturing and other operations decreased 1.9% from $11.5 million in Q1 2009 to $11.3 million in the same period in 2010.
Gross Profit
Gross profit increased 45.3%, from $65.5 million in Q1 2009 to $95.2 million in the same period in 2010. Gross profit margin, being gross profit expressed as a percentage of revenue, increased from 37.0% in the three months ended March 31, 2009 to 37.9% in the same period in 2010, mainly due to improved gross profit margin from plantation fibre operations.
Wood Fibre Operations Gross Profit
Plantation Fibre
Gross profit margin from sales of standing timber increased from 49.8% or $30 per m(3) in Q1 2009 to 63.8% or $57 per m(3) in the same period in 2010, mainly due to the increase in average selling price of standing timber. The gross profit margin from sales of harvested logs was 47.4% or $37 per m(3) in Q1 2010 compared to zero sales in the same period last year.
Trading of Wood Logs
Gross profit margin from trading of imported wood and domestic wood products and logs increased from 3.9% in Q1 2009 to 6.3% in the same period in 2010.
Manufacturing and Other Operations Gross Profit
Gross profit margin from our manufacturing and other operations increased from 2.4% in Q1 2009 to 12.8% in the same period in 2010. The increase was mainly due to improvement in the engineered flooring segment.
Selling, General and Administration Expenses
Our selling, general and administration expenses increased 17.6%, from $14.8 million in Q1 2009 to $17.4 million in the same period in 2010. The increase was in line with our growth of the Company.
Net Income
As a result of the foregoing, net income for the period increased 86.0%, from $23.0 million in Q1 2009 to $42.8 million in Q1 2010. Overall net income for the period as a percentage of revenue increased from 13.0% in Q1 2009 to 17.0% in the same period in 2010.
Cash Flows from Operating Activities of Continuing Operations
Net cash provided from operating activities decreased from $167.6 million in the first quarter of 2009 to $51.4 million in the same period in 2010. The decrease was due to the increase in cash provided by operations, offset by cash used in working capital that mainly resulted from a decrease in accounts payables and accrued liabilities and an increase in inventories and prepaid expenses and others related to the plantation fibre operations.
Capital Expenditures
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First Quarter of 2010 First Quarter of 2009
Hectares $'million Hectares $'million
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Tree acquisition 37,778 183.3 75,977 245.6
Tree acquisition -
acquisition of
subsidiaries 86,786 283.1 - -
Re-planting and
maintenance of
plantations 7.1 5.8
Panel manufacturing
and others 2.2 5.2
Panel manufacturing
and others -
acquisition of
subsidiaries 6.6 -
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Total 482.3 256.6
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For fiscal 2010, capital expenditures are expected to be around $1,300 million for plantation acquisitions, replanting and maintenance, and approximately $30 million for the development of manufacturing facilities integrated with plantation operations.
Outlook
Our outlook for China's economy remains positive for 2010, with strong impetus coming from domestic consumption. We anticipate demand for wood fibre will remain strong, as industrialization and urbanization continue to drive infrastructure and housing demands. And with the Central Government's intention to construct low-income housing and the development of new towns in inland regions, we foresee wood fibre prices continuing to firm up as demand continues to exceed domestic supply.
Notice of Conference Call
Sino-Forest will hold a conference call for analysts and investors to further discuss its first quarter results on Wednesday, May 12, 2010 at 8:30 am EST / 8:30 pm HKT. To participate, please dial +1-647-427-7450 for local and international callers, or 1-888-231-8191 for North America toll-free access. Alternatively, to listen to the live webcast and replay in a listen-only mode, go to Sino-Forest's 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 sales of standing timber and wood logs and the complementary manufacturing of downstream engineered-wood products. The company's common shares have traded on the Toronto Stock Exchange under the symbol TRE since 1995.
Note (1) to the Financial Highlights table: Gross profit for any 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 period is defined as income from continuing operations for the period after adding back depreciation and amortization and depletion of timber holdings from 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 and interest rates, and PRC economic, political and social conditions and government policy, and stock market volatility, other factors not currently viewed as material 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) (Unaudited)
Three months ended March 31, 2010 2009
$ $
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Revenue 251,015 177,234
Costs and expenses
Cost of sales 155,811 111,709
Selling, general and administration 17,416 14,804
Depreciation and amortization 1,223 1,129
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174,450 127,642
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Income from operations before the undernoted 76,565 49,592
Interest expense (27,694) (16,795)
Interest income 3,425 1,904
Exchange gains (losses) 72 (93)
Loss on changes in fair value of financial
instruments (709) (981)
Other income 318 221
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Income before income taxes and non-controlling
interests 51,977 33,848
Provision for income taxes (8,784) (5,926)
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Net income from continuing operations 43,193 27,922
Net loss from discontinued operations (419) (4,917)
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Net income before non-controlling interests 42,774 23,005
Non-controlling interests 24 -
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Net income for the period 42,798 23,005
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Earnings per share
Basic, for net income for the period 0.18 0.12
Diluted, for net income for the period 0.18 0.12
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Earnings per share from continuing operations
Basic, for net income for the period 0.18 0.15
Diluted, for net income for the period 0.18 0.15
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Losses per share from discontinued operations
Basic, for net loss for the period (0.00) (0.03)
Diluted, for net loss for the period (0.00) (0.03)
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Retained earnings
Retained earnings, beginning of period 1,054,257 769,557
Net income for the period 42,798 23,005
Transfer to statutory reserve (2) -
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Retained earnings, end of period 1,097,053 792,562
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Expressed in thousands of United States dollars) (Unaudited)
Three months ended March 31, 2010 2009
$ $
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Net income for the period 42,798 23,005
Other comprehensive income:
Unrealized losses on foreign currency
translation of self-sustaining operations (212) (736)
Unrealized gains (losses) on financial assets
designated as available-for-sale, net of tax
of $nil 1,539 (1,210)
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Other comprehensive income (losses) 1,327 (1,946)
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Comprehensive income 44,125 21,059
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CONSOLIDATED BALANCE SHEETS
(Expressed in thousands of United States dollars) (Unaudited)
As at As at
March 31, December 31,
2010 2009
$ $
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ASSETS
Current
Cash and cash equivalents 980,373 1,102,366
Short-term deposits 63,070 70,387
Accounts receivable 273,666 282,306
Inventories 66,422 45,978
Prepaid expenses and other 64,397 54,747
Convertible bonds 30,566 29,446
Assets of discontinued operations 9 1,531
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Total current assets 1,478,503 1,586,761
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Timber holdings 2,589,362 2,183,489
Capital assets, net 83,760 77,377
Intangible assets 8,647 636
Other assets 108,243 115,636
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4,268,515 3,963,899
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Bank indebtedness 124,906 103,991
Current portion of long-term debt 530 -
Accounts payable and accrued liabilities 257,432 250,287
Income taxes payable 7,225 7,346
Liabilities of discontinued operations 12,300 12,156
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Total current liabilities 402,393 373,780
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Long-term debt 1,113,927 925,466
Future income tax liabilities 39,222 -
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Total liabilities 1,555,542 1,299,246
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Non-controlling interests 1,209 -
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Shareholders' equity
Equity portion of convertible senior notes 158,883 158,883
Share capital 1,216,178 1,213,495
Contributed surplus 12,503 12,200
Accumulated other comprehensive income 225,475 224,148
Statutory reserve 1,672 1,670
Retained earnings 1,097,053 1,054,257
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Total shareholders' equity 2,711,764 2,664,653
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4,268,515 3,963,899
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Commitments and Contingencies
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in thousands of United States dollars) (Unaudited)
Three months ended March 31, 2010 2009
$ $
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income for the period 42,798 23,005
Net loss from discontinued operations 419 4,917
Add (deduct) items not affecting cash
Depletion of timber holdings included in cost
of sales 68,256 64,205
Depreciation and amortization 1,819 1,129
Accretion of convertible senior notes 6,204 2,859
Stock-based compensation 1,172 1,086
Loss on changes in fair value of financial
instruments 709 981
Unrealized exchange gains (1,201) (19)
Interest income from Mandra (117) (300)
Non-controlling interests (24) -
Other (629) 1,294
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119,406 99,157
Net change in non-cash working capital balances (67,971) 68,428
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Cash flows from operating activities of
continuing operations 51,435 167,585
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Cash flows used in operating activities
of discontinued operations (235) (2,789)
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CASH FLOWS USED IN INVESTING ACTIVITIES
Additions to timber holdings (189,767) (233,861)
Increase in other assets (10,093) (5,257)
Additions to capital assets (2,299) (3,263)
Decrease (increase) in non-pledged short-term
deposits 7,189 (864)
Business acquisitions 4,151 -
Acquisition of convertible bonds - (200)
Proceeds from disposal of capital assets 37 -
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Cash flows used in investing activities (190,782) (243,445)
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Cash flows from (used in) investing activities of
discontinued operations 1,478 (929)
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CASH FLOWS FROM FINANCING ACTIVITIES
Payment on deferred financing costs (5,893) -
Payment on derivative financial instrument - (2,891)
Increase in bank indebtedness 19,726 8,311
Decrease in pledged short-term deposits 137 228
Issuance of shares, net of issue costs 1,882 -
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Cash flows from financing activities 15,852 5,648
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Cash flows used in financing activities of
discontinued operations - (1)
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Effect of exchange rate changes on cash and
cash equivalents 259 (238)
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Net decrease in cash and cash equivalents (121,993) (74,169)
Cash and cash equivalents, beginning of period 1,102,366 441,171
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Cash and cash equivalents, end of period 980,373 367,002
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Supplemental cash flow information
Cash payment for interest charged to income 24,793 24,569
Interest received 1,000 681
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SOURCE Sino-Forest Corporation
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