Agriculture Stocks ; Hanfeng (TSX: HF.TO) Announces Financial Results for Fiscal 2010 and Provides Operational Updates
ORONTO, ONTARIO--(http://www.investorideas.com/ clean energy blog ) - Hanfeng Evergreen Inc. (TSX: HF.TO) ("Hanfeng" or the "Company") reported its financial results for the fourth quarter and year ended, June 30, 2010 and provided several operational updates. Hanfeng changed its fiscal year-end from December 31 to June 30, effective from June 30, 2009. Therefore, Hanfeng's comparative period for fiscal 2010 is a 6 month audited period ended June 30, 2009. For a more meaningful comparative, the key financial results of fiscal 2010 were compared to the twelve-month period ended June 30, 2009, which is not an audited period. During the fourth quarter and fiscal year 2010, the Canadian dollar appreciated approximately 14 percent and 8 percent to the Chinese Renminbi (RMB) respectively. Although Hanfeng earns almost all of its revenue and pays all of its suppliers in RMB, it reports its financial results in Canadian dollars and the appreciation of the RMB has a negative impact on reported results. All amounts are in Canadian dollars unless otherwise noted.
Summary Financial Results
----------------------------------------------------------------------------
For the 3 month period For the 12 month period
(in thousands in $Cdn) ended June 30 ended June 30
except percentages and ---------------------------------------------------
per share data 2010 2009 2010 2009(2)
----------------------------------------------------------------------------
Sales $ 83,923 $ 67,365 $ 270,405 $ 292,662
Gross profit 12,214 10,694 41,765 45,820
EBITDA(1) 11,847 13,602 38,708 46,780
Net Income 9,598 11,208 29,305 41,525
Basic and diluted EPS $ 0.15 $ 0.19 $ 0.47 $ 0.68
(1)EBITDA is a non-GAAP financial measure, which the Company believes is
meaningful information for purposes of performance evaluation and it
allows for comparisons of the Company's performance to the industry as
it eliminates the impact of financing decisions, capital structure and
the cost basis of assets.
(2)Unaudited
Sales revenue in fiscal 2010 was $270.4 million versus $292.7 million for the twelve-month period ended June 30, 2009. The decline was the result of several factors including the impact of foreign exchange and a lower average selling price due to lower commodity prices, partially offset by record sales volumes of Hanfeng's traditional slow and controlled release fertilizers ("SCR") and a year-over-year increase in CarbonPower(R) coated urea ("CPU") sales volumes. EBITDA in fiscal 2010 was $38.7 million versus $46.8 million in the twelve-month period ended June 30, 2009. Net income in fiscal 2010 was $29.3 million versus $41.5 million due to lower gross profit, a property, plant and equipment write-down in the current fiscal year of $1.0 million, a $2.2 million foreign exchange gain in the prior year and a $2.3 million increase in income tax expense due to the expiration of the Company's zero tax holiday status in China during the current fiscal year. Earnings per share ("EPS") was $0.47 in fiscal 2010, compared to $0.68 in the twelve month period ended June 30, 2009.
In the fourth quarter of fiscal 2010, sales revenue was $83.9 million compared to $67.4 million in the quarter ended June 30, 2009. EBITDA in the fourth quarter of 2010 was $11.9 million versus $13.6 million in the quarter ended June 30, 2009. Net income was $9.6 million in the quarter ended June 30, 2010 compared with $11.2 million in the quarter ended June 30, 2009. EPS was $0.15 in the quarter ended June 30, 2010 compared to $0.19 in the quarter ended June 30, 2009. The year-over-year decreases were primarily the result of the aforementioned issues and partially offset by an increase in tonnage sold of SCR.
In 2010, Hanfeng continued to experience increasing demand for its SCR and CPU, despite significant decreases in the selling price of conventional fertilizers. Conventional fertilizers (urea, potash, and phosphate) continue to be the Company's primary competition, as well as the primary feedstock for its SCR, representing approximately 90 percent of cost of goods sold. Over the past several quarters, the combination of the global economy and an oversupply of conventional fertilizers and commodities have put significant downward pressure on prices and caused many producers to liquidate inventories at below market levels. Hanfeng, as a value-added producer, is highly sensitive to fluctuations in commodity prices, as well as market pricing. The Company has continued to increase its sales volumes despite these unfavourable market conditions. However, to remain competitive and continue to grow market share, Hanfeng has adjusted its prices to reflect the current market. The Company has experienced signs of stabilization in its markets and does expect that prices of conventional fertilizers/raw materials will slowly begin to improve.
In the quarter ended June 30, 2010, overall gross profit increased 14 percent to $12.2 million from $10.7 million in the quarter ended June 30, 2009. Gross profit in fiscal 2010 decreased to $41.8 million from $45.8 million in the twelve-month period ended June 30, 2009, down $4.1 million or 9 percent. Excluding the impact of foreign exchange, gross profit decreased 1 percent on a year-over-year basis, mainly due to a lower gross profit per metric ton and slightly offset by record sales volumes. Gross profit in RMB increased 29 percent during the quarter ended June 30, 2010 over the comparative period last year as a result of a 40 percent increase in sales in RMB, and partially offset by lower gross margin of SCR per metric ton.
Gross profit as a percentage of sales in the fourth quarter of fiscal 2010 was 14.6 percent compared to 15.9 percent in the comparative period as a result of a lower gross profit per ton in SCR as a result of the aforementioned market conditions and the commercialization of the CPU product in fiscal 2010 which has a lower gross margin percentage than SCR. Gross profit as a percentage of sales for fiscal 2010 was slightly down to 15.4 percent from 15.7 percent as a result of gross profit per ton proportionally decreasing more compared to the decrease of the average selling price in the comparative periods and the commercialization of the CPU product in fiscal 2010.
SCR
Sales volume of SCR grew to 152,907 metric tons ("MT") in the fourth quarter ended June 30, 2010, a 12 percent increase over the 136,197 MT sold in the comparative period last year. Production of SCR in the fourth quarter of fiscal 2010 increased to 156,646 MT, the highest quarterly production in the Company's history. Hanfeng's average selling price of SCR decreased 2 percent to RMB 2,669 per MT from RMB 2,737 per MT in the third quarter of fiscal 2010, and 8 percent from RMB 2,899 per metric MT achieved in the quarter ended June 30, 2009. The reduction in selling price correlates to a decrease in raw material costs during the same period. For the quarter ended June 30, 2010, the average price of urea, phosphate, and potash decreased 5 percent, 4 percent and 6 percent respectively, compared to the third quarter in 2010.
In fiscal 2010, Hanfeng's SCR sales volumes grew to 570,065 MT compared to the 546,040 MT sold in the twelve months ended June 30, 2009. Total production of SCR in fiscal 2010 rose to 571,811 MT, up 3 percent from 557,732 MT in the twelve-month period ended June 30, 2009, as result of net additional capacity added. Hanfeng's average selling price of SCR decreased to RMB 2,681 per MT from RMB 3,200 in the twelve-month period ended June 30, 2009, a decrease of 16 percent. Over the same period, the average price of urea, phosphate, and potash decreased by 6 percent, 15 percent and 26 percent respectively. As at June 30, 2010, there were 16,733 MT of finished goods on hand compared to 14,791 MT as at June 30, 2009.
Gross profit for SCR on a per MT basis for the quarter ended June 30 2010 was RMB 430, a decrease of RMB 28 per MT or 6 percent from the comparative period last year. Gross profit for SCR per MT in the fourth quarter of fiscal 2010 decreased 2 percent from the third quarter of fiscal 2010. Declines in both periods were primarily due to the aforementioned market conditions. Gross profit for SCR on a per MT basis for fiscal 2010 was RMB 435, compared with RMB 498 in the twelve-month period ended June 30, 2009, down RMB 63 per metric ton or 13 percent, also as a result of the aforementioned market conditions.
Combined with the annual production capacity from the recently completed facility in Indonesia and the repurchase of Agrium Inc.'s interest in the Shanxi joint venture (see "Recent Business Highlights"), the Company now has approximately 826,000 MTPA in SCR design capacity.
CPU
During the quarter ended June 30, 2010, Hanfeng sold 72,116 tonnes of the CPU, a 99 percent increase over the 36,262 tonnes sold in the previous quarter. Hanfeng began commercial sales of CPU in the third quarter of fiscal 2010 after securing the exclusive supply and distribution agreement with FBSciences, Inc. in November 2009. The Company experienced importation delays in the second and third quarter of fiscal 2010 as a result of importing a new technology for the agricultural market in China. The average selling price on CPU in the fourth quarter of fiscal 2010 was RMB 2,012 per MT, down 3 percent from RMB 2,081 per MT in the third quarter of fiscal 2010 due to declining urea prices in the fourth quarter of fiscal 2010.
Gross profit per MT on CPU was RMB 207, up RMB 14 per MT or 7 percent from RMB 193 in the third quarter of fiscal 2010.
As at June 30, 2010, Hanfeng reported cash and cash equivalents of $51.9 million and net working capital of $166.6 million. Total inventory and advances to suppliers increased to $94.0 million at June 30, 2010, compared with $77.8 million at June 30, 2009 in preparation for additional volumes of CPU and an anticipated increase in raw material prices. As at June 30, 2010, Hanfeng had bank loan of nil and had no long-term debt.
Balance Sheet Highlights
----------------------------------------------------------------------------
(In CAD$ thousands except for ratios) June 30, 2010 June 30, 2009
----------------------------------------------------------------------------
Current ratio 40.8:1 4.4:1
----------------------------------------------------------------------------
Cash & cash equivalents 51,949 92,342
----------------------------------------------------------------------------
Working capital 166,597 148,786
----------------------------------------------------------------------------
Total assets 286,781 317,266
----------------------------------------------------------------------------
Total debt Nil 39,146
----------------------------------------------------------------------------
Total equity 282,596 273,777
----------------------------------------------------------------------------
Debt / Equity N/A 14%
----------------------------------------------------------------------------
Notes:
(1) Current ratio = Current Assets / Current Liabilities
(2) Total debt does not include accounts payable, accrued liabilities,
advances from customers and income tax payable.
Operations Update
Beidahuang Agriculture Company
Hanfeng is pleased to announce that it has entered into two separate letters of intent ("LOI") with Beidahuang Agriculture Company Limited ("Beidahuang") (SHA:600598). Beidahuang is the largest public agricultural company in China, consisting of 16 agricultural subsidiaries, involved in multiple areas of the agricultural market including farming, distribution of rice, grains, and other agricultural products, and manufacturing fertilizers. It produces 3,000,000 tons of high quality rice, 300,000 tons of soybean, 150,000 tons of wheat, 1,000,000 tons of rice, as well as 300,000 tons of other grains, cash crop and organic food per annum from its nearly 10,000,000 mu of farm land. Both letters of intent are subject to final board approval.
The first LOI is a sales and future cooperative joint venture agreement whereby Hanfeng will supply up to 200,000 MT a year of value-added fertilizer products to a joint venture ("the Distribution JV") to be operated by Beidahuang and Hanfeng. Under the terms of the LOI, the value-added fertilizer products (SCR, CPU) will be sold to the Distribution JV at market prices for resale in Beidahuang's distribution network. The Distribution JV also plans to distribute additional value-added fertilizers by leveraging Hanfeng's core technologies, Beidahuang's distribution network and third party resources. In addition to reselling value-added fertilizers, the Distribution JV will further cooperate in the areas of research and development, promotions and field trials. Under the proposed terms of the LOI, Hanfeng will own 40 percent of the joint venture.
The second LOI proposes the construction and operation of a 150,000 MTPA multi-product joint venture production facility (the "Facility") located in the Heilongjiang province. The Facility would be built next to Beidahuang's urea production facility. The Facility would be owned under similar terms as those provided in other Hanfeng joint ventures and the proposed ownership would be 50 percent for the Company and 50 percent for Beidahuang. Construction is expected to begin immediately after reaching a definitive agreement.
Minghua JV
The original joint venture with Shandong Mingshui Great Chemical Group (the "Minghua JV") to construct and operate a 100,000 MTPA polymer coated urea ("PCU") fertilizer plant in the Shandong province was signed in July 2008. Construction commenced in the fourth quarter of 2008 and the facility was put into production in July 2009. In 2009, the Company entered into an agreement to merge Minghua's existing 40,000 MTPA sulphur coated urea facility with the Minghua JV and build an additional PCU production line with an annual capacity of 100,000 MTPA. After an examination of the current market in Shandong, and the first year operations of the Minghua JV, the Company has elected to dedicate its limited construction resources to other markets that it expects will provide a higher return on investment. Consequently, the Company will not proceed with the merger of Minghua's existing 40,000 MTPA sulphur coated facility or the additional 100,000 MTPA PCU production line at this time.
Fertilizer Bag Facility
Hanfeng has entered into an agreement with Harbin Fengyuan Agricultural Industry Co., Ltd. ("Fengyuan") to purchase the assets of a fertilizer bag production facility for $5.6 million. As at June 30, 2010, the Company had deposited $4.7 million with Fengyuan to secure the assets in accordance with the purchase and sale agreement. The agreement is subject to obtaining governmental approvals and is expected to close in the first half of fiscal 2011, pending the legal transfer of assets. The Company believes it is beneficial to control that aspect of the supply chain as it expands its product offerings and geographical locations.
Recent Business Highlights
-- In September 2010, Hanfeng announced that it had completed construction
of the 150,000 MTPA slow and controlled release fertilizer joint venture
facility in Surabaya, Indonesia (the "JV facility"). The JV facility is
the first to be constructed by Hanfeng outside of mainland China and is
jointly owned by PT. Matahari Kahuripan Indonesia (the "Makin Group"),
the largest producer of palm oil and tobacco in Indonesia, and PT.
Sumber Agrindo Sejahtera ("Sejahtera"), Indonesia's largest agricultural
distributor. Under the final terms of the joint venture agreement, the
Makin Group will purchase a portion of the JV production for its oil
palm plantation, and Sejahtera will purchase the remainder for sale
through its extensive distribution network in Southeast Asia.
-- In July 2010, Hanfeng purchased Agrium's ownership in Hanfeng's
subsidiary responsible for developing Sulphur Coated Urea ("SCU"), known
as Hanfeng Slow Release Fertilizer (Canada) Co. Ltd. (or "Subco").
Hanfeng purchased Agrium's 50 percent ownership in Subco for $2.3
million in cash and 100,000 common shares valued at the closing price of
$6.22 per share for total consideration of $2.9 million. As a result,
Agrium's ownership in Hanfeng increased from 19.4 percent to 19.6
percent effective July 16, 2010. Agrium had acquired its 50 percent
interest in Subco in April 2009 through an option granted in conjunction
with the agreement in which Agrium became a shareholder of Hanfeng, in
April 2007. Hanfeng's Subco has a 50 percent interest in Fengxi, which
includes a 50,000 MTPA SCU facility in Shanxi province, China, and the
perpetual license for SCU production in China. The re-purchase is a
result of Hanfeng broadening its strategic focus to building facilities
that have a broad range of products including SCU.
-- In June 2010, the Company expanded its exclusive sales and distribution
agreement (the "Revised Agreement") with FBSciences, Inc. for
CarbonPower(R). The Revised Agreement extends the exclusive term of the
original agreement announced in November 2009 from two years to five
years and adds Japan and Korea to the exclusive territory that includes
China and Southeast Asia. The Revised Agreement also increases the
minimum amount of CarbonPower(R) expected to be shipped in the last
three years of the agreement by an average of 275 percent over the base
year. As at June 30, 2010, the Company had sold over 200,000 MT of CPU.
-- In April 2010, Hanfeng successfully completed the first phase of
fertilizer field trials, jointly conducted with Malaysia's Ministry of
Agriculture (MMOA). The trials were carried out on rice crops in Perak
State, Malaysia using Hanfeng slow-release fertilizers. The field trials
produced exceptional results with crops treated with a variety of
Hanfeng's formulated slow and controlled release fertilizers producing
higher yields and better quality rice crops with fewer applications.
Additionally, the products improved the soil quality by providing
micronutrients such as sulfur, which similar to China, is deficient in
Malaysian soil. The trials also revealed a decrease in nutrient residue,
which is attributable to the slow release characteristics of Hanfeng
fertilizers. Malaysia represents a significant new market for the
Company's slow release products.
-- The Company received verification that the Chemical Industry Standard
for Urea Formaldehyde Slow Release Fertilizer (UF) and related UF
products jointly drafted by Hanfeng and the National Center for Quality
Supervision and Testing of Chemical Fertilizers was unanimously
approved. This standard will provide enforceable guidelines for the
production of UF slow release fertilizer in China, as well as further
enhance Hanfeng's leading brand.
Mr. Paul Begin, CFO of Hanfeng, will host a conference call to review the Company's financial and operational performance. Management invites analysts and investors to participate on the conference call.
Date: September 29, 2010
Time: 10:00 am, Eastern Time
Dial in Number: 416-340-8061 or 1-866-223-7781
Taped Replay: 416-695-5800 or 1-800-408-3053
Taped Replay Pass Code: 5522118
Webcast Presentation Link: http://www.gowebcasting.com/2002
Hanfeng's year end 2010 financial statements and MD&A have been filed and will be available at www.sedar.com.
About Hanfeng Evergreen Inc.
Hanfeng is the largest producer of slow and controlled release fertilizers in China. It was the first company to introduce the concept of slow and controlled release fertilizers into China's agriculture market with its establishment of the first commercial scale production in China. All production facilities are located in prime agricultural regions of China. The Company is headquartered in Toronto, Ontario and its shares trade on the Toronto Stock Exchange. www.hanfengevergreen.com.
This press release contains forward-looking statements based on current expectations. These forward-looking statements entail various risks and uncertainties that could cause actual results to differ materially from those reflected in these forward-looking statements. Risks and uncertainties about Hanfeng's business are more fully discussed in the Company's disclosure materials, including its annual information form and MD&A, filed with the securities regulatory authorities in Canada. All amounts are stated in Canadian dollars except for noted otherwise.
Contacts
Paul Begin
Hanfeng Evergreen Inc.
Chief Financial Officer
(416) 368-8588
pb@hanfengevergreen.com
News and Stories Published at the Clean Energy Stocks Blog for Green Investors:
Research Renewable Energy and water stocks as an Investor Ideas member and gain access to global green stock directories. Our Goal; One Million More Investors Investing in Green Technology and Water Technology in 2010. Join us today: Become an Investorideas.com member and research stocks and invest in cleantech : get login access to all 4 cleantech stock directories including water stocks and renewable energy stocks : http://www.investorideas.com/membership/
Research agriculture stocks with the Investorideas.com agriculture stocks directory
Disclaimer: this is not a solicitation to buy or sell stocks, or an endorsement for any company.
Get insight into cleantech and renewable energy stocks with news and the cleantech and climate change podcast. This blog is part of www.investorideas.com cleantech investor content .
No comments:
Post a Comment