Sino-Forest Reports Strong Third Quarter 2010 Results
To Strengthen Market Leadership Position With the Addition of 500,000 Hectares Through Acquisition and Replanting
TORONTO, Nov. 10, 2010 /PRNewswire-FirstCall/ - Sino-Forest Corporation ("Sino-Forest") (TSX:TRE) announced its financial results today for the three months and nine months ended September 30, 2010. All amounts in this release are expressed in U.S. dollars unless otherwise indicated.
Third Quarter and Nine Months 2010 Financial Highlights
- Revenue increased 63% to $0.6 billion and 50% YTD to $1.2 billion - EBITDA up 61% to $455 million (43% YTD to $775 million) - Net Income (after a $24-million non-cash tax charge related to prior years) rose 12% and 29% YTD* - Diluted EPS was $0.47, after giving effect to a $0.09 non-cash tax charge related to prior years* - Cash Flow From Operating Activities increased 48% in Q3 (34% YTD) ------------------------------------------------------------------------- (US$ millions, Third Quarter Nine months except margins ended September 30 ended September 30 and per share 2010 2009 Change 2010 2009 Change amounts) $ $ % $ $ % ------------------------------------------------------------------------- Revenue 599.5 367.0 63 1,156.3 768.6 50 Gross Profit(1) 221.0 144.6 53 439.5 292.4 50 Gross Profit Margin 37% 39% (2%pts) 38% 38% 0 EBITDA(2) 455.0 282.0 61 775.2 542.3 43 Net Income 118.0 105.6 12 224.5 173.7 29 Diluted Earnings Per Share* 0.47 0.47 (1) 0.92 0.86 6 Cash Flow From Operating Activities 326.4 234.2 39 478.1 558.5 (14) ------------------------------------------------------------------------- Notes (1) and (2) are at the end of this release * During the third quarter of 2010, Sino-Forest recorded an additional tax provision in the amount of $24.3 million or $0.09 per share relating to the application of a higher deemed profit rate to the years 2007, 2008 and 2009 as a result of changes to PRC tax laws and Sino-Forest's interpretation of such changes. The diluted EPS before this non-cash tax charge was $0.56.
Allen Chan, Chairman and CEO of Sino-Forest said, "We are very pleased to report another strong quarter as demand for wood fibre continues to increase with China's economic growth. We further strengthened our positions in the PRC's emerging markets, while benefiting from the increased demand for wood as a result of infrastructure development and real estate construction in the PRC. During the third quarter, we resumed our planting programme, which was temporarily delayed by heavy rainfall in the previous quarter. We are in the process of replanting approximately 30,000 hectares in Hunan, Guangxi and Guangdong Provinces."
Mr. Chan added, "To fund our growth initiatives, we raised $600 million last month from a notes offering, which was very well received. In that regard, we extend our gratitude to the long-time and new investors for their confidence in Sino-Forest's long-term strategic business plan and in our capability to successfully execute it. We remain committed to sustainable forestry practices and to aligning our strategies with the PRC Central Government's master plan which encourages a greener and more balanced economy."
Mr. Chan continued, "With the $1.4 billion cash on hand, we plan to expand our geographical reach to the central and western regions of China where we intend to enter into agreements in the near future for the acquisition of an incremental 300,000 hectares of mature saleable trees to the existing base of our commercial plantations. After investing over 16 years in scientific silviculture applications and biotech R&D, we have amassed significant intellectual capital and a solid track record of developing and cultivating fast-growing species that produce high-yield output. We also intend to plant 200,000 hectares over the next two years in our southwest home base, further expanding Sino-Forest's vast portfolio of sustainable plantations. We believe that with this added strategy, in addition to the planned acquisitions, our plantation size will increase substantially from 756,800 hectares to over 1.3 million hectares."
Business Segment Highlights
The following table presents the total revenue breakdown for the three months ended September 30, 2010 and 2009:
------------------------------------------------------------------------- Third Quarter Third Quarter ended Sep 30, 2010 ended Sep 30, 2009 $'000 % $'000 % ------------------------------------------------------------------------- Wood Fibre Operations Plantation Fibre 474,871 79.2 295,831 80.6 Trading of Wood Logs 107,603 17.9 60,400 16.4 Manufacturing and Other Operations 17,016 2.9 10,731 3.0 ------------------------------------------------------------------------- Total 599,490 100.0 366,962 100.0 -------------------------------------------------------------------------
Our revenue increased $233 million in the third quarter of 2010 from last year, due primarily to sales gains of $179 million in plantation fibre and $47 million in trading of wood logs.
Wood Fibre Operations
Plantation Fibre
------------------------------------------------------------------------- Third Quarter ended Sep 30, 2010 ------------------------------------------------------------------------- Vol. Av. sold price Total Hectares per m(3) revenue '000 m(3) $ $'000 ------------------------------------------------------------------------- Standing timber 14,642 2,500 65 161,461 Harvested logs 25,808 3,878 81 313,410 ------------------------------------------------------------------------- Total 40,450 6,378 74 474,871 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Third Quarter ended Sep 30, 2009 ------------------------------------------------------------------------- Vol. Av. sold price Total Hectares per m(3) revenue '000 m(3) $ $'000 ------------------------------------------------------------------------- Standing timber 18,681 2,793 63 176,919 Harvested logs 10,771 1,477 81 118,912 ------------------------------------------------------------------------- Total 29,452 4,270 69 295,831 -------------------------------------------------------------------------
Revenue from sales of plantation fibre increased 60.5% to $474.9 million in Q3 2010, compared to $295.8 million in the same period in 2009, mainly due to an increase in revenue from harvested logs. The average sales per hectare increased 16.9% to $11,740 per hectare in Q3 2010, compared to $10,045 per hectare in the same period last year.
The average yield per hectare sold as standing timber was 171 m(3) in Q3 2010, 14% higher than in the same quarter in 2009 (150 m(3)). The average yield per hectare sold as harvested logs increased 9% to 150 m(3) for Q3 2010 compared to 137 m(3) last year.
During the three months ended September 30, 2010, we sold approximately 16,896 hectares of plantation trees, which were acquired under our master agreements, mainly in Hunan and Guangxi. As of September 30, 2010, we had approximately 756,800 hectares of forest plantations, an increase of 60% from Q3 2009.
Trading of Wood Logs
Revenue from trading of imported and domestic wood products and logs increased 78.2% to $107.6 million in Q3 2010, compared to $60.4 million in Q3 2009, primarily due to a higher volume of Russian wood logs sold.
Manufacturing and Other Operations Revenue
Revenue from this business segment increased 58.6% to $17.0 million in Q3 2010, compared to $10.7 million in the same period in 2009, mainly due to higher sales of engineered wood flooring.
Gross Profit
Gross profit increased 52.8% to $221.0 million in Q3 2010, compared to $144.6 million in the same period in 2009. Gross profit margin decreased to 36.9% of revenue in Q3 2010, compared to 39.4% in Q3 2009, mainly due to lower gross profit margin from plantation fibre operations.
Gross Profit Margin
Plantation Fibre
Gross profit margin from sales of standing timber remained at $33 per m(3) in Q3 2010, even though margin percentage decreased to 50.8% from 52.8% in Q3 2009. The gross profit margin from sales of harvested logs was 42.2% or $34 per m(3) in Q3 2010, compared to 38.3% or $31 per m(3) in the same period in 2009. These increases were mainly due to a decrease in average timber cost per m(3) as a result of better yield per hectare in Q3 2010.
Trading of Wood Logs
Gross profit margin from trading of imported and domestic wood products and logs decreased to 4.8% in Q3 2010, compared to 7.2% in the same period in 2009.
Manufacturing and Other Operations
Gross profit margin from our manufacturing and other operations decreased to 7.9% in the three months ended September 30, 2010 from 11.8% in Q3 2009.
Selling, General and Administration Expenses
Our SG&A expenses increased 76.8% to $24.3 million in Q3 2010, compared to $13.8 million in Q3 2009. This was mainly due to increased accrued incentive compensation, R&D costs and consultancy services fees, and incremental costs of newly acquired subsidiaries in 2010.
Provision for Income Taxes
The provision for income taxes was $48.2 million in the three months ended September 30, 2010 compared to $10.2 million in the same period in 2009. The increase was the result of a $23.9 million tax provision due to higher earned income and an increase in the deemed profit percentage rate to 15% used in recording the income tax provision in Q3 2010 compared to a 10% rate in Q3 2009 as a result of changes to PRC tax laws and Sino-Forest's interpretation thereof. Furthermore, due to such changes, an additional $24.3 million provision was recorded in the quarter as Sino-Forest applied a deemed profit percentage rate of 15% in certain provinces in the PRC where Sino-Forest did business in the 2007, 2008 and 2009 years, rather than the previously applied 10% rate.
Net Income for the Period
As a result of the foregoing, net income for the period increased 11.8% to $118.0 million in the three months ended September 30, 2010, compared to $105.6 million in the same period in 2009. Overall net income for the period as a percentage of revenue decreased to 19.7% in the three months ended September 30, 2010, compared to 28.8% in the same period in 2009.
Cash flows from operating activities of continuing operations
Net cash provided from operating activities increased to $326.4 million in Q3 2010, compared to $234.2 million in the same period in 2009. The increase was due to an increase in cash provided by operations, offset by the increase in cash used in working capital, which mainly resulted from a net effect of the increase in accounts receivables, inventories, prepaid expenses, and accounts payable and accrued liabilities.
Capital Expenditures
------------------------------------------------------------------------- Three months ended September 30 2010 2009 Hectares $'million Hectares $'million ------------------------------------------------------------------------- Tree acquisition 69,569 464.5 61,981 279.7 ------------------------------------------------------------------------- Tree acquisition - acq of subsidiaries - - ------------------------------------------------------------------------- Re-planting and maintenance of plantations 8.4 14.5 ------------------------------------------------------------------------- Panel manufacturing and others 4.5 3.0 ------------------------------------------------------------------------- Panel manufacturing & others - acq of subsidiaries 3.6 - ------------------------------------------------------------------------- Total 481.0 297.2 ------------------------------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- Nine months ended September 30 2010 2009 Hectares $'million Hectares $'million ------------------------------------------------------------------------- Tree acquisition 145,653 852.1 179,072 677.8 ------------------------------------------------------------------------- Tree acquisition - acq of subsidiaries 86,786 283.1 - ------------------------------------------------------------------------- Re-planting and maintenance of plantations 24.9 28.2 ------------------------------------------------------------------------- Panel manufacturing and others 17.5 10.8 ------------------------------------------------------------------------- Panel manufacturing & others - acq of subsidiaries 10.2 - ------------------------------------------------------------------------- Total 1,187.8 716.8 ------------------------------------------------------------------------- -------------------------------------------------------------------------
Recent Development
On November 2, 2010, Sino-Forest announced the acquisition of MFVL Limited, a New Zealand plantation company that owns approximately 13,000 hectares of freehold land with at present approximately 5.6 million m(3) total recoverable volume of radiata pine. Sino-Forest will continue to support Omnicorp's growth plan and subject to certain approvals including from Omnicorp minority shareholders, the shares of MFVL will be transferred to Omnicorp, at cost plus all costs and expenses reasonably incurred. Omnicorp is focused on importing quality fibre into the PRC from jurisdictions outside of the PRC.
Outlook
The draft 12th Five-year plan (2011-2015) was approved at the PRC Central Government's 5th plenary meeting, which took place in October 2010. Although the plan is subject to revision and final approval at the next National Plenary Committee to be held in March 2011, it is generally perceived that the Central Government intends to make China less dependent on exports and more reliant on domestic consumer spending, and plans to improve livelihoods in rural villages through urbanization and employment creation. Based on the draft plan, the Central Government also intends to shift towards better and greener growth, to accelerate rural modernization through construction of affordable housing and improvements in agriculture, infrastructure as well as coordinated regional development. Therefore, we remain very optimistic about China's domestic growth and demand for wood fibre. We remain committed to sustainable, long-term planting in China by sowing scientifically advanced seedlings, which we have developed through R&D aimed at achieving higher fibre quality and yield output at our planted plantations.
Notice of Conference Call
Sino-Forest will hold a conference call for analysts and investors to discuss its third quarter results on Wednesday, November 10, 2010 at 8:30 am EST / 9:30 pm HKT. To participate, please dial +1-647-427-7450 for local and international callers, or for North America toll-free access 888-231-8191. 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 is a leading, commercial forest plantation operator in China. Its principal businesses include the ownership and management of forest plantation trees and sales of standing timber, wood logs, and complementary manufacturing of downstream engineered-wood products. Sino-Forest also holds a majority interest in Omnicorp Limited (HK:0094), a Hong Kong listed investment holding company with access to concession forest in Suriname, South America. Sino-Forest's common shares have traded 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 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 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 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 Nine months ended September 30, September 30, 2010 2009 2010 2009 $ $ $ $ ------------------------------------------------------------------------- Revenue 599,490 366,962 1,156,263 768,615 Costs and expenses Cost of sales 378,504 222,324 716,811 476,206 Selling, general and administration 24,333 13,760 59,673 44,849 Depreciation and amortization 1,187 1,160 3,463 3,450 ------------------------------------------------------------------------- 404,024 237,244 779,947 524,505 ------------------------------------------------------------------------- Income from operations before the undernoted 195,466 129,718 376,316 244,110 Interest expense (31,341) (17,323) (89,225) (51,154) Interest income 1,920 2,580 8,912 6,760 Exchange losses (1,493) (217) (2,386) (580) (Loss) gain on changes in fair value of financial instruments (432) 1,938 (4,419) 3,545 Other income 453 - 908 1,272 ------------------------------------------------------------------------- Income before income taxes 164,573 116,696 290,106 203,953 Provision for income taxes (48,199) (10,199) (66,550) (22,515) ------------------------------------------------------------------------- Net income from continuing operations 116,374 106,497 223,556 181,438 Net loss from discontinued operations (274) (880) (970) (7,767) ------------------------------------------------------------------------- Net income before non-controlling interests 116,100 105,617 222,586 173,671 Non-controlling interests 1,936 - 1,935 - ------------------------------------------------------------------------- Net income for the period 118,036 105,617 224,521 173,671 ------------------------------------------------------------------------- Earnings per share Basic, for net income for the period 0.48 0.48 0.92 0.87 Diluted, for net income for the period 0.47 0.47 0.92 0.86 ------------------------------------------------------------------------- Earnings per share from continuing operations Basic, for net income for the period 0.48 0.48 0.93 0.91 Diluted, for net income for the period 0.47 0.48 0.92 0.90 ------------------------------------------------------------------------- Loss per share from discontinued operations Basic, for net loss for the period (0.00) (0.00) (0.00) (0.04) Diluted, for net loss for the period (0.00) (0.00) (0.00) (0.04) ------------------------------------------------------------------------- Retained earnings Retained earnings, beginning of period 1,160,759 837,611 1,054,257 769,557 Net income for the period 118,036 105,617 224,521 173,671 Transfer from statutory reserve - - 17 - ------------------------------------------------------------------------- Retained earnings, end of period 1,278,795 943,228 1,278,795 943,228 ------------------------------------------------------------------------- ------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Expressed in thousands of United States dollars) (Unaudited) Three months ended Nine months ended September 30, September 30, 2010 2009 2010 2009 $ $ $ $ ------------------------------------------------------------------------- Net income for the period 118,036 105,617 224,521 173,671 Other comprehensive income: Unrealized gains on foreign currency translation of self-sustaining operations 35,627 1,096 50,640 1,590 Unrealized gains on financial assets designated as available-for-sale 485 6,650 2,490 10,955 Reversal of unrealized gains on financial assets designated as available-for-sale (485) - (2,490) - ------------------------------------------------------------------------- Other comprehensive income 35,627 7,746 50,640 12,545 ------------------------------------------------------------------------- Comprehensive income 153,663 113,363 275,161 186,216 ------------------------------------------------------------------------- ------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEETS (Expressed in thousands of United States dollars) (Unaudited) As at As at September 30, December 31, 2010 2009 $ $ ------------------------------------------------------------------------- ASSETS Current Cash and cash equivalents 816,551 1,102,366 Short-term deposits 32,788 70,387 Accounts receivable 406,105 282,306 Inventories 89,348 45,978 Prepaid expenses and other 86,255 54,747 Convertible bonds - 29,446 Assets of discontinued operations - 1,531 ------------------------------------------------------------------------- Total current assets 1,431,047 1,586,761 ------------------------------------------------------------------------- Timber holdings 2,992,447 2,183,489 Capital assets, net 99,761 77,377 Intangible assets 162,697 636 Other assets 122,054 115,636 ------------------------------------------------------------------------- 4,808,006 3,963,899 ------------------------------------------------------------------------- ------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current Bank indebtedness 122,524 103,991 Current portion of long-term debt 87,670 - Accounts payable and accrued liabilities 400,836 250,287 Income taxes payable 10,854 7,346 Liabilities of discontinued operations 12,803 12,156 ------------------------------------------------------------------------- Total current liabilities 634,687 373,780 ------------------------------------------------------------------------- Long-term debt 1,066,303 925,466 Future income tax liabilities 78,743 - ------------------------------------------------------------------------- Total liabilities 1,779,733 1,299,246 ------------------------------------------------------------------------- Non-controlling interests 45,362 - ------------------------------------------------------------------------- Shareholders' equity Equity portion of convertible senior notes 158,883 158,883 Share capital 1,255,793 1,213,495 Contributed surplus 12,999 12,200 Accumulated other comprehensive income 274,788 224,148 Statutory reserve 1,653 1,670 Retained earnings 1,278,795 1,054,257 ------------------------------------------------------------------------- Total shareholders' equity 2,982,911 2,664,653 ------------------------------------------------------------------------- 4,808,006 3,963,899 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Commitments and Contingencies CONSOLIDATED STATEMENTS OF CASH FLOWS (Expressed in thousands of United States dollars) (Unaudited) Three months ended Nine months ended September 30, September 30, 2010 2009 2010 2009 $ $ $ $ ------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income for the period 118,036 105,617 224,521 173,671 Net loss from discontinued operations 274 880 970 7,767 Add (deduct) items not affecting cash Depletion of timber holdings included in cost of sales 258,380 151,079 395,436 294,716 Depreciation and amortization 2,010 1,160 5,630 3,450 Accretion of convertible senior notes 6,610 3,354 19,267 9,764 Stock-based compensation 696 1,173 2,868 3,498 Loss (gain) on changes in fair value of financial instruments 432 (1,937) 4,419 (3,545) Unrealized exchange losses (gains) (860) 193 (1,779) 196 Other 846 (1,047) (850) (1,091) ------------------------------------------------------------------------- 386,424 260,472 650,482 488,426 Net change in non-cash working capital balances (59,995) (26,308) (172,347) 70,071 ------------------------------------------------------------------------- Cash flows from operating activities of continuing operations 326,429 234,164 478,135 558,497 ------------------------------------------------------------------------- Cash flows (used in) from operating activities of discontinued operations (166) 232 (491) (2,342) ------------------------------------------------------------------------- CASH FLOWS USED IN INVESTING ACTIVITIES Additions to timber holdings (411,542) (303,930) (776,259) (729,703) Increase in other assets (36,649) (14,457) (48,698) (20,065) Additions to capital assets (7,628) (2,932) (22,398) (8,805) Decrease (increase) in non-pledged short-term deposits 5,245 (5,122) 13,165 (6,600) Business acquisitions (856) - 3,163 - Acquisition of convertible bonds - - - (200) Proceeds from disposal of capital assets 9 - 142 111 ------------------------------------------------------------------------- Cash flows used in investing activities (451,421) (326,441) (830,885) (765,262) Cash flows from investing activities of discontinued operations - 14,981 1,478 24,120 ------------------------------------------------------------------------- CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES Payment on deferred financing costs - (14,027) (5,893) (14,027) (Decrease) increase in bank indebtedness (31,923) 1,835 16,485 3,860 Decrease (increase) in pledged short-term deposits 25,171 (213) 24,997 1,089 Issuance of shares, net of issue costs - - 4,896 323,947 Payment on derivative financial instrument - (2,890) - (5,781) Issuance of a long-term debt 24,750 - 24,750 - Repayment of a long-term debt - - (530) - ------------------------------------------------------------------------- Cash flows from (used in) financing activities 17,998 (15,295) 64,705 309,088 ------------------------------------------------------------------------- Effect of exchange rate changes on cash and cash equivalents 979 21 1,243 (72) ------------------------------------------------------------------------- Net (decrease) increase in cash and cash equivalents (106,181) (92,338) (285,815) 124,029 Cash and cash equivalents, beginning of period 922,732 657,538 1,102,366 441,171 ------------------------------------------------------------------------- Cash and cash equivalents, end of period 816,551 565,200 816,551 565,200 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Supplemental cash flow information Cash payment for interest charged to income 34,780 22,783 70,828 50,047 Interest received 1,478 646 3,907 1,833 ------------------------------------------------------------------------- -------------------------------------------------------------------------
SOURCE Sino-Forest Corporation
WANT YOUR COMPANY'S NEWS FEATURED ON PRNEWSWIRE.COM?
Newsrooms &
Influencers
Digital Media
Outlets
Journalists
Opted In
Share this article