Sino-Forest Reports Strong Third Quarter 2008 Results
Thu Nov 13, 6:00 AMTORONTO, Nov. 13 /PRNewswire-FirstCall/ - Sino-Forest Corporation ("Sino-Forest") (TSX:TRE and TRE.S) announced today strong financial results for the third quarter ended September 30, 2008. All amounts in this release are expressed in U.S. dollars unless otherwise indicated.
Financial Highlights
- Revenue increased 83% to $296 million and EBITDA was up 67% to
$221 million in the third quarter
- Before an impairment charge of $18 million, net income rose 47% to
$93 million and diluted EPS was $0.49
- Cash Flow From Operations rose 24% to $269 million year-to-date
- Strong balance sheet with cash & cash equivalents of approximately
$499 million
(US$ millions, Three months ended Nine months ended
except margins September 30 September 30
and per share 2008 2007(3) Change 2008 2007(3) Change
amounts) (Restated) (Restated)
$ $ % $ $ %
-------------------------------------------------------------------------
Revenue 295.5 161.5 83.0 618.8 403.0 53.5
Gross Profit(1) 127.6 70.5 81.0 241.7 144.7 67.0
Gross Profit Margin 43.2 43.7 (0.5% pts) 39.1 35.9 3.2% pts
EBITDA(2) 220.6 131.9 67.2 400.5 240.6 66.5
Net Income 75.2 63.4 18.6 133.1 96.8 37.5
Diluted Earnings
Per Share 0.40 0.35 16.0 0.72 0.59 22.1
Cash Flow From
Operating
Activities 137.2 153.0 (10.4) 269.4 218.0 23.6
Notes (1), (2) and (3) are at end of this release.
Allen Chan, Chairman and CEO of Sino-Forest, said, "Due to global financial difficulties, China's rapid pace of economic growth and consumer consumption is declining, which in turn, is slowing wood product exports and imports. However, domestic wood fibre demand, particularly from the furniture and construction sectors, has remained fairly steady in the third quarter as proven by our significant increase in revenue. Continuing demand for domestic wood fibre and steady rise in fibre prices reflect wood deficit remains in China."
Mr Chan continued, "During the third quarter, we are proud to have signed our fourth long-term tree acquisition agreement and raised $345 million from a convertible notes offering. We now have long-term agreements covering 950,000 hectares of forest plantation area mainly located in the south-west and eastern part of China, with approximately 95 million cubic metres of wood fibre, while maintaining a strong balance sheet with half a billion dollars of cash to fund our continued growth."
Business Segment Highlights
Total revenue increased 83.0% to $295.5 million in the third quarter 2008, due primarily to higher revenue from the sales of plantation fibre and manufactured wood products. Total revenue increased 53.5% during the nine months ended September 30, 2008.
Wood Fibre Operations
Plantation Fibre
3 months ended 3 months ended
September 30, 2008 September 30, 2007
Sales per Total Sales per Total
Hectares hectare revenue Hectares hectare revenue
$ $'000 $ $'000
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Purchased
plantations 26,968 6,733 181,565 34,714 3,936 136,628
Integrated
plantations 6,170 9,844 60,738 - - -
Heyuan pine
undertaking - - - 317 1,811 574
Planted
plantations 1,284 2,284 2,933 1,017 2,069 2,104
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Total 34,422 7,124 245,236 36,048 3,864 139,306
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Plantation fibre revenue increased 76.0% in the third quarter 2008, mainly attributable to new sales of logs harvested from the integrated plantations in 2008 compared to none in 2007.
The average yield of harvested logs sold from integrated plantation operations was 100 m3 per hectare and commanded an average selling price of $99 per m3. The logs sold in Q3 2008 had a lower average selling price than in Q2 2008, reflecting the smaller diameter of logs harvested. Nonetheless, the gross profit margin for logs sold from integrated plantations in Q3 2008 was slightly higher (42% or $42 per m3) than in Q2 (37% or $40 per m3), which was attributable to lower harvesting costs.
The average yield of standing timber sold from purchased and planted plantations was 106 m3 per hectare compared to 72 m3 per hectare (including the Heyuan pine undertaking) in third quarter last year. We obtained an average selling price of $61 per m3 in Q3 2008 compared to $53 per m3 last year, representing an increase of 15.1% (including 10.7% appreciation of Renminbi versus US dollars).
The total volume of fibre sold during the third quarter was approximately 3.6 million m3, with approximately 3.0 million m3 from purchased and planted plantations, and the balance from integrated plantations. Year-to-date 2008, total volume of fibre sold was approximately 6.8 million m3, of which about 5.3 million m3 was from purchased and planted plantations, and 1.5 million m3 from integrated plantations.
Plantation fibre comprised 83.0% of total revenue in Q3 2008, compared to 86.3% in Q3 2007.
Other Fibre
Revenue from sales of imported wood products increased 137.5% from $13.4 million in 2007 to $31.9 million in 2008. This increase was primarily due to higher volume of imported logs traded.
Revenue from the sale of wood logs increased 42.6% to $1.5 million in 2008 due to higher trading volume of wood logs from northeast China.
Other fibre sales comprised 11.3% of total revenue in Q3 2008, compared to 8.9% of total revenue in Q3 2007.
Manufacturing and Other Operations
Revenue from our manufacturing and other operations increased 120.1% from $7.7 million in 2007 to $17.0 million in 2008, mainly due to higher sales of engineered wood flooring and relatively new processing facilities in Hunan province.
Gross Profit
Gross profit increased 81.0% from $70.5 million in 2007 to $127.6 million in 2008. Gross profit margin (gross profit as a percentage of total revenue) decreased slightly overall from 43.7% in 2007 to 43.2% in 2008, mainly due to the lower proportion of sales of plantation fibre, which has a higher gross profit margin compared to other fibre.
Wood Fibre Operations
Gross profit margin from sales of purchased and planted plantations increased from 50.2% in 2007 to 54.2% in 2008 due to higher selling prices. The gross profit margin from sales of logs from the integrated plantation operations was 42.2%.
Gross profit margin from sales of imported wood products increased from 2.5% in 2007 to 4.1% in 2008.
Gross profit margin from sales of wood logs increased from 5.8% in 2007 to 14.6% in 2008 as a result of relatively more sales of logs from northeast China, which commanded a higher margin than the sales of logs from Inner Mongolia.
Manufacturing and Other Operations
Gross profit margin from our manufacturing and other operations decreased slightly from 2.4% in 2007 to 2.1% in 2008, primarily due to increased cost of production at our manufacturing plants.
Selling, General and Administration Expenses
Our SG&A expenses increased 53.5% from $7.9 million in 2007 to $12.2 million in 2008, due primarily to additional staff compliments.
Impairment of Capital Assets
The Company recorded an impairment of capital assets of $18.2 million in Q3 2008, resulting from the write-down of certain manufacturing facilities to fair market value, due to continued losses as a result of increasing input cost of production.
Net Income
As a result of the foregoing, net income in the third quarter increased 18.6% from $63.4 million in 2007 to $75.2 million in 2008. Overall net profit margin decreased from 39.3% in 2007 to 25.4% in 2008, mostly as a result of impairment charges.
Cash Flows from Operating Activities of Continuing Operations
Net cash provided by operations decreased from $153.0 million last year to $137.2 million in Q3 2008. The decrease was primarily due to the net change in working capital, mainly resulting from an increase in accounts receivables from wood fibre sales.
Capital Expenditures
-------------------------------------------------------------------------
3 months ended September 30
------------------------------------------
2008 2007
------------------------------------------
(in millions) Hectares $ Hectares $
-------------------------------------------------------------------------
Tree acquisition 21,661 186.2 32,696 202.2
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Re-planting & maintenance
of plantations 6.8 3.4
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Panel manufacturing
and others 6.6 3.5
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Total 199.6 209.1
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-------------------------------------------------------------------------
9 months ended September 30
------------------------------------------
2008 2007
------------------------------------------
(in millions) Hectares $ Hectares $
-------------------------------------------------------------------------
Tree acquisition 63,532 375.1 63,040 352.2
-------------------------------------------------------------------------
Re-planting & maintenance
of plantations 15.4 13.2
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Panel manufacturing
and others 25.1 6.4
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Total 415.6 371.8
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During the third quarter 2008, a total $186 million was invested in the acquisition of 21,661 hectares of trees mainly in Hunan, Guangxi and Yunnan.
Total capital expenditure allocated for 2008 is $700 million, and year-to-date, $375 million was invested to acquire 63,532 hectares of trees. For manufacturing and other operations, the allocated capital is $30 million for this year, and year-to-date, $25 million was mainly invested in Suzhou and Guangxi operations.
Outlook
We remain conservative in predicting wood fibre consumption and log prices in the fourth quarter and going forward, although we do see sustained demand for fibre, especially for domestic plantation logs. Our customers are tending to use relatively more small-diameter logs, instead of large-diameter imported logs, to produce low- to mid-quality wood-based products.
We remain focused on executing our long-term contracts at integrated plantation operations, acquiring wood fibre at competitive prices. Sino-Forest is well capitalized, with strong liquidity of half a billion of cash. Continuous cash flow from sales of logs will provide capital for large-scale replanting programs, which we anticipate will begin in early 2009. We remain confident that our execution plan remains on track and will deliver a long-term sustainable supply of fibre.
Notice of Conference Call
Sino-Forest will hold an investor conference call to further discuss its third quarter 2008 financial results on November 13, 2008 at 8:30 am EST / 9:30 pm HKT. To participate, please dial +1-416-695-9761 for local and international callers, or 877-461-2816 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. The Canadian company started its operations in 1994 and was one of the first few foreign and privately managed operators involved in forest products in the PRC. Its principal businesses include the ownership and management of forest plantation trees and the sales of standing timber, wood logs and complementary manufacturing of downstream engineered-wood products. The Corporation'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.
Note (3) to the Financial Highlights table: Results have been restated
to reflect the classification of wood chips and commission operations as
discontinued operations as disclosed in Note 18 Discontinued Operations
and the adoption of a new accounting policy for uncertainty in income
taxes in the consolidated financial statements for the year ended
December 31, 2007.
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.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
Three months ended Nine months ended
(Expressed in thousands of September 30, September 30,
United States dollars, except (Restated) (Restated)
for earnings per share 2008 2007 2008 2007
information) (Unaudited) $ $ $ $
-------------------------------------------------------------------------
Revenue 295,548 161,475 618,810 403,016
Costs and expenses
Cost of sales 167,973 90,981 377,109 258,303
Selling, general and
administration 12,197 7,945 33,500 24,582
Depreciation and amortization 1,218 1,255 3,290 3,454
-------------------------------------------------------------------------
181,388 100,181 413,899 286,339
-------------------------------------------------------------------------
Income from operations before
the undernoted 114,160 61,294 204,911 116,677
Interest expense (15,184) (11,010) (35,605) (33,295)
Interest income 3,310 6,140 8,063 11,225
Exchange (losses) gains (537) 15,192 (4,164) 16,651
Impairment of capital assets (18,157) - (18,157) -
Gain (loss) on changes in fair
value of financial instruments 2,229 (1,427) (1,112) (1,099)
Other income 860 387 2,411 1,003
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Income before income taxes 86,681 70,576 156,347 111,162
Provision for income taxes (10,353) (5,521) (19,872) (11,421)
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Net income from continuing
operations 76,328 65,055 136,475 99,741
Net loss from discontinued
operations (1,153) (1,672) (3,372) (2,938)
-------------------------------------------------------------------------
Net income for the period 75,175 63,383 133,103 96,803
-------------------------------------------------------------------------
Earnings per share
Basic 0.41 0.35 0.73 0.60
Diluted 0.40 0.35 0.72 0.59
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Earnings per share from
continuing operations
Basic 0.42 0.36 0.75 0.62
Diluted 0.41 0.35 0.74 0.61
-------------------------------------------------------------------------
Loss per share from
discontinued operations
Basic (0.01) (0.01) (0.02) (0.02)
Diluted (0.01) (0.01) (0.02) (0.02)
-------------------------------------------------------------------------
Retained earnings
Retained earnings, beginning
of period, as previously
presented 598,892 422,111 540,964 397,380
Cumulative impact of accounting
changes relating to financial
instruments - - - (8,689)
-------------------------------------------------------------------------
Retained earnings, beginning
of period 598,892 422,111 540,964 388,691
Net income for the period 75,175 63,383 133,103 96,803
-------------------------------------------------------------------------
Retained earnings, end
of period 674,067 485,494 674,067 485,494
-------------------------------------------------------------------------
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three months ended Nine months ended
September 30 September 30
(Expressed in thousands of (Restated) (Restated)
United States dollars) 2008 2007 2008 2007
(Unaudited) $ $ $ $
-------------------------------------------------------------------------
Net income for the period 75,175 63,383 133,103 96,803
Other comprehensive income:
Unrealized loss on financial
assets designated as
available-for-sale, net
of tax of nil (423) - (1,471) -
Unrealized gains on foreign
currency translation of
self-sustaining operations 10,784 16,375 110,267 39,502
-------------------------------------------------------------------------
Other comprehensive income 10,361 16,375 108,796 39,502
-------------------------------------------------------------------------
Comprehensive income 85,536 79,758 241,899 136,305
-------------------------------------------------------------------------
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CONSOLIDATED BALANCE SHEETS
As at As at
(Expressed in thousands of United September 30, December 31,
States dollars) (Unaudited) 2008 2007
$ $
-------------------------------------------------------------------------
ASSETS
Current
Cash and cash equivalents 499,010 328,690
Short-term deposits 28,864 22,163
Accounts receivable 223,096 105,329
Inventories 41,629 46,661
Prepaid expenses and other 38,875 24,185
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Total current assets 831,474 527,028
-------------------------------------------------------------------------
Timber holdings 1,465,336 1,174,153
Capital assets, net 87,906 78,608
Other assets 92,162 57,708
-------------------------------------------------------------------------
2,476,878 1,837,497
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Bank indebtedness 69,218 55,383
Accounts payable and accrued liabilities 144,561 107,989
Income taxes payable 5,299 1,615
Liabilities of discontinued operations 37,856 32,016
-------------------------------------------------------------------------
Total current liabilities 256,934 197,003
-------------------------------------------------------------------------
Long-term debt 711,029 441,985
Derivative financial instrument 4,470 11,211
-------------------------------------------------------------------------
Total liabilities 972,433 650,199
-------------------------------------------------------------------------
Commitments and Contingencies
Shareholders' equity
Equity portion of convertible senior notes 70,462 -
Share capital 539,315 537,141
Contributed surplus 6,518 3,906
Accumulated other comprehensive income 214,083 105,287
Retained earnings 674,067 540,964
-------------------------------------------------------------------------
Total shareholders' equity 1,504,445 1,187,298
-------------------------------------------------------------------------
2,476,878 1,837,497
-------------------------------------------------------------------------
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CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended Nine months ended
September 30 September 30
(Expressed in thousands of (Restated) (Restated)
United States dollars) 2008 2007 2008 2007
(Unaudited) $ $ $ $
-------------------------------------------------------------------------
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income for the period 75,175 63,383 133,103 96,803
Net loss from discontinued
operations 1,153 1,672 3,372 2,938
Add (deduct) items not
affecting cash
Depletion of timber holdings
included in cost of sales 105,266 69,388 192,301 120,454
(Gain) loss on changes in
fair value of financial
instruments (2,229) 1,427 1,112 1,099
Unrealized exchange
(gains) losses (483) (13,119) 3,809 (14,274)
Stock-based compensation 1,019 1,003 3,195 1,932
Depreciation and amortization 1,218 1,255 3,290 3,454
Impairment of capital assets 18,157 - 18,157 -
Interest income from Mandra (300) (1,800) (900) (1,800)
Other 2,334 418 3,755 1,226
-------------------------------------------------------------------------
201,310 123,627 361,194 211,832
Net change in non-cash working
capital balances (64,150) 29,376 (91,758) 6,168
-------------------------------------------------------------------------
Cash flows from operating
activities of continuing
operations 137,160 153,003 269,436 218,000
-------------------------------------------------------------------------
Cash flows from operating
activities of discontinued
operations - 112 - 4,221
-------------------------------------------------------------------------
CASH FLOWS USED IN
INVESTING ACTIVITIES
Additions to timber holdings (190,118) (186,685) (389,121) (344,061)
Increase in other assets (1,274) (18,645) (24,373) (18,645)
Additions to capital assets (6,587) (3,475) (25,087) (6,365)
Decrease (increase) in
non-pledged short-term
deposits 7,848 (4,645) (2,505) (3,293)
Business acquisition - - (1,928) -
Proceeds from disposal of
capital assets 2 - 3 -
-------------------------------------------------------------------------
Cash flows used in investing
activities (190,129) (213,450) (443,011) (372,364)
-------------------------------------------------------------------------
CASH FLOWS FROM
FINANCING ACTIVITIES
Increase in long-term debt 335,865 - 335,865 -
Increase (decrease) in bank
indebtedness 13,503 (29,087) 11,566 (31,496)
Decrease (increase) in pledged
short-term deposits 293 1,606 (2,426) 3,717
Issuance of shares, net of
issue costs 1,302 3,991 1,591 388,770
Payment on derivative
financial instrument (2,819) (1,235) (4,919) (2,165)
-------------------------------------------------------------------------
Cash flows from (used in)
financing activities 348,144 (24,725) 341,677 358,826
-------------------------------------------------------------------------
Effect of exchange rate changes
on cash and cash equivalents (278) 14,148 2,218 16,744
-------------------------------------------------------------------------
Net increase (decrease) in cash
and cash equivalents 294,897 (70,912) 170,320 225,427
Cash and cash equivalents,
beginning of period 204,113 449,226 328,690 152,887
-------------------------------------------------------------------------
Cash and cash equivalents,
end of period 499,010 378,314 499,010 378,314
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Supplemental cash flow
information
Cash payment for interest
charged to income 15,451 16,595 35,793 37,997
Interest received 2,811 4,374 6,828 9,355
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SOURCE Sino-Forest Corporation
74.15 (0.81%)