Migao Reports Fiscal 2015 First Quarter Financial Results

TSX: MGO

TORONTO, Aug. 14, 2015 /CNW/- Migao Corporation (TSX:MGO), a China-based specialty potash fertilizer producer, today reported financial results for the three  month  period ended June 30,  2015.

Migao reported revenues of $116.7 million for the first quarter ended June 30, 2015, representing $57.4 million (97%) increase from $59.2 million for the quarter ended June 30, 2014. The revenue increase for the quarter ended June 30, 2015, is mainly due to increased sales of all products except for potassium nitrate primarily as a result of significantly higher sales volumes of potassium chloride and ammonium chloride sold during the current quarter, coupled with higher average selling price for potassium sulphate achieved during the quarter ended June 30, 2015, compared with one year ago.  Sales volume for potassium chloride (direct sales) and ammonium chloride increased by 994% and 790% during the quarter ended June 30, 2015 as compared to the same period one year ago, resulting in sales increase by $60.8 million and $1.8 million respectively for these two products. The potassium sulphate market remained good and stable during the current quarter. Despite 17% decrease in the volume, reported sales amount for potassium sulphate increased by $1.6 million during the current quarter mainly due to higher average sales price realized in the quarter as well as higher average CAD/RMB exchange rate than the same period last year.  Sales volume for potassium nitrate, however, decreased by 52% during the current quarter. As a result, sales for potassium nitrate decreased by approximately $7 million, partly offsetting the sales increases from other products. There are some improvements in the sales situation of potassium nitrate and ammonium chloride as average sales prices for these products during the current quarter went up from the previous quarter ended March 31, 2015. Similar to previous years, sales for compound fertilizers were light during the first quarter of fiscal 2016.  The effect of increased sales volume of hydrochloric acid was offset by the decline in the average selling prices as the market demands were limited by the slow-down of the Chinese economy. A 13% appreciation of Chinese Yuan (RMB) against Canadian dollar also contributed to the higher dollar sales reported for the quarter ended June 30, 2015 as compared to the same quarter one year ago. The fluctuation in the exchange rate between RMB and Canadian dollar also impacts Migao's other financial numbers reported in Canadian dollars during the quarter ended June 30, 2015.

Gross profit for the quarter ended June 30, 2015, was $8.0 million, compared to gross profit of 7.7 million for the same quarter one year ago. The change in gross profit for the current quarter was mainly due to higher gross profit margin realized from sales of potassium sulphate, hydrochloric acid, and ammonium chloride as compared to the same quarter one year ago. Migao's profitability in the sales of potassium sulphate mainly benefited from lower raw material prices, favorable PRC potassium sulphate market conditions as a result of strong demands for potassium sulphate and tight market supply as well as the stabilization of global and PRC potash market prices commencing from the beginning of  2014 calendar year.  We aslo saw some improvements in the sales of potassium nitrate and ammonium chloride during the quarter as average sales prices for these products were better than the previous quarter coupled with higher sales volume for ammonium chloride. However, Migao had a gross loss of approximately $2.2 million from sales of potassium chloride (direct sale) during the first quarter of fiscal 2016, which partially offset the gross profits realized from other products.     

Selling, general and administrative expenses were $13.1 million for the quarter ended June 30, 2015, up by $4.5 million from $8.6 million for the quarter ended June 30, 2014, primarily due to higher volume of products delivered and increased export sales during the first quarter of fiscal 2016. Finance costs were $3.7 million, up by $1.4 million from $2.3 million for the same quarter last year and the increase was primarily due to $47 million of new bank loans borrowed during the quarter.

As a result, for the quarter ended June 30, 2015 Migao reported a net loss of $5.4 million or $(0.10), per basic and diluted share, compared to   a net profit of $0.4 million or $0.01 per basic and diluted share for the same quarter one year ago. For the quarter ended June 30, 2015, average selling price for potassium nitrate was RMB3,926 ($778) per tonne, RMB3,424 ($679) per tonne for potassium sulphate, RMB1,617 ($320) for compound fertilizers and RMB2,044 ($405) per tonne for potassium chloride,  compared to RMB3,827 ($670) per tonne for potassium nitrate, RMB3,077 ($538) per tonne for potassium sulphate, RMB2,751 ($481) per tonne for compound fertilizers and RMB2,527($442) per tonne for potassium chloride in the first quarter of fiscal 2015.

As at June 30, 2015, Migao reported cash and restricted cash of $151.5 million and working capital of $168.1 million.

At June 30, 2015, Migao had $156.6 million of inventory, which included $76.9 million (183,451 tonnes) of potassium chloride inventory on hand with an average delivered price of $419 per tonne (March 31, 2015 - $417), and $11.5 million of various other raw materials in stock, and 39.1 million of goods in transit comprising of potassium chloride with average delivered price of $394 per tonne. Also included in inventory was $24.3 million (77,450 tonnes) of finished goods inventory on hand, including co-products.  During the quarter ended June 30, 2015, Migao (excluding SQM JV and Eurochem JV) sold 8,762 tonnes of potassium nitrate, 55,397 tonnes of potassium sulphate, and 166,714 tonnes of potassium chloride (direct sale).

Cash and cash equivalents was $8.5 million as at June 30, 2015, compared to $14.7 million as at March 31, 2015. The decrease in cash and cash equivalents during the quarter ended June 30, 2015 was mainly a combined results of $47.7 million of cash used in operations, a net $1.5 million of cash used in investing activities mainly as a result of $1.5 million used in the purchase of plant and equipment, as well as a net $43.3 million of cash provided in financing activities primarily from cash inflow of $47.0 million from loan drawdowns, net off by loan interest payment for $3.7 million.   The impact from the changes in foreign exchange rates on the cash flow was approximately $0.6 million for the quarter ended June 30, 2015.

SUMMARY FINANCIAL RESULTS

In $'000 except per share date
		3 months ended	3 months ended
		June 30, 2015	June 30, 2014
Revenue		116,664	59,217
Gross profit (loss)		7,973	7,652
Gross profit (loss) (% of revenue)		6.8%	12.9%
Profit (loss)		(5,445)	445
EBITDA		(121)	4,452
Loss (earnings) per share
	Basic	(0.10)	0.01
	Diluted	(0.10)	0.01
Weighted average numbers of shares
(in millions of shares)
	Basic	52.5	52.5
	Diluted	52.5	53

Balance Sheet Highlights

In $'000 except ratio
	June 30, 2015	March 31, 2015
Current ratio	1.44:1	1.50:1
Cash, cash equivalents and restricted cash	151,488	118,349
Working capital	168,066	175,755
Total assets	714,023	696,239
Total liabilities	383,586	355,062
Total equity	330,437	341,177
Long term debt to equity ratio	0.01:1	0.01:1

Migao's financial statements and MD&A have been filed on SEDAR and will be available at www.sedar.com

Recent developments

1)      Eurochem JV

Eurochem JV was incorporated in Hong Kong on February 14, 2014. Eurochem and Migao each owns 50% of Eurochem JV.  Accordingly, 50% of Eurochem JV's operation is included in Migao's consolidated financial statements. Eurochem and Migao anticipated that would contribute US$18 million (approximately $20 million) to Eurochem JV for a total capital contribution of US$36 million (approximately $38 million).  During the quarter ended December 31, 2014, Migao contributed US$7.2 million (approximately $8.3 million) and Eurochem contributed US$18 million (approximately $20 million) to the capital of Eurochem JV.

During the quarter ended June 30, 2014, Eurochem JV obtained the approval from the Ministry of Commerce of the PRC to conduct business in China.  On October 28, 2014, Eurochem JV purchased 100% of equity interest of Yunnan Migao Fertilizer Co., Ltd. ("Yunnan Migao"), an wholly-owned subsidiary of Migao that was incorporated on July 12, 2013, for cash consideration of US$18 million (approximately $20 million). From October 28, 2014 and on, Yunan Migao is a wholly owned subsidiary of Eurochem JV.

As at June 30, 2015, Migao anticipates it will contribute an additional US$10.79 million to the capital of Eurochem JV in the 2015 calendar year.

2)      Financial guarantee contracts

In December 2014, two of Migao's wholly owned subsidiaries, Liaoning Migao and Changchun Migao, have entered into financial guarantee contracts with the Bank of China, Suifenhe branch, for the provision of financial guarantee in respect of a bank facility of RMB 98 million (approximately $18.3 million) being granted to a major raw material supplier of Migao in China for a period from December 28, 2014 till December 21, 2015. The bank facility will be used in the purchase of raw materials on Migao's behalf and such a guarantee is intended to be provided for the purchase of imported potassium chloride.  

Migao subsequently obtained a clarification from the guarantee and the lending bank that the bank facility guaranteed by the Group can only be used for the purpose of issuing letter of credit for the purchase of imported potash fertilizer on behalf of Migao. As at June 30, 2015, US$14.1million (approximately $17.6 million) of the bank facility under the financial guarantee provided by Migao was utilized for issuing letter of credit to settle the purchase of imported potassium chloride on behalf of Migao. The directors of the Company consider that the default risk of unutilized portion of such financial guarantee is minimal.

3)      Yunnan facility update

Yunnan Migao commenced construction of a 60,000 tonne per annum potassium nitrate production facility during the quarter ended March 31, 2015. The construction of the 60,000 tonne per annum potassium nitrate production is anticipated to be completed and put into operation in the 2015 calendar year. Up to date, approximately 80% of the construction work has been completed.

4)      Value added tax on fertilizer

On August 10, 2015 the PRC government announced to resume the imposition of 13% value added tax ("VAT") on both imported fertilizers and processed fertilizers sold in domestic markets effective on September 1, 2015. Migao currently is evaluating the impact of such policy change and fertilizer sales are temporarily halted until further implementation guidance is received from the PRC government.  

About Migao
Migao Corporation, through its wholly owned subsidiaries, owns and operates fertilizer production plants in various strategic locations across China for the production and sale of specialty potash fertilizer (potassium nitrate and potassium sulphate) to China's agricultural market. Migao Corporation is subject to,and complies with strict government regulations that govern safety, quality and environmental protection. Migao's Sichuan facility, Guangdong facility, Liaoning facility, Changchun facility, Zunyi facility and Sichuan SQM Migao joint venture are ISO 14001 certified, an international environmental management standard. Please visit www.migaocorp.com for further information.

USE OF NON-GAAP MEASURES
Certain non-GAAP measures referenced in this news release have no standardized meaning under International Financial Reporting Standards ("IFRS") and therefore, are unlikely to be comparable to similar measures presented by other issuers. Where we reference non-GAAP measures, we provide definitions. For example, EBITDA is commonly defined as earnings before interest, taxes, depreciation and amortization. EBITDA is most directly comparable to the GAAP measure operating income or loss, except that depreciation and amortization of plant assets are included in measuring operating income or loss, but depreciation and amortization expenses are excluded in measuring EBITDA. In Migao's earnings releases, consolidated financial statements and MD&As, unless otherwise noted, all financial data is prepared in accordance with IFRS.

CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This news release may include forward-looking statements within the meaning of certain securities laws, including the "safe harbour" provisions of the Securities Act (Ontario) and other provincial securities laws in Canada.  These forward-looking statements include, among others, statements with respect to our objectives and goals, and strategies to achieve those objectives and goals, as well as statements with respect to our beliefs, plans, objectives, expectations, anticipations, estimates and intentions.  The words "may", "will", "could", "should", "would", "suspect", "outlook", "believe", "plan", "anticipate", "estimate", "expect", "intend", "forecast", "objective", and "continue" (or the negative or grammatical variations thereof), and words and expressions of similar meaning, are intended to identify forward-looking statements.

By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, which give rise to the possibility that predictions, forecasts, projections and other forward-looking statements will not be achieved.  Certain material factors or assumptions are applied in making forward-looking statements and actual results, performance or achievements may differ materially from those expressed or implied in such statements.  We caution readers not to place undue reliance on forward-looking statements as a number of important factors, many of which are beyond our control, could cause actual results, performance or achievements to differ materially from the beliefs, plans, objectives, expectations, anticipations, estimates and intentions expressed in such forward-looking statements.  These factors that relate to our company include, but are not limited to: risks related to raw materials; execution of the business plan; expansion plans; dependence on key personnel; key relationships; dependence on key customers; dependence on key suppliers; competition; market factors and volatility of commodity prices; environmental risks and hazards; operating risks; proprietary rights; infrastructure; future capital requirements; technical substitution; exchange rate fluctuations; insurance; foreign operations; tobacco industry considerations; weather conditions and natural disasters; control by management; seasonality; dividends; conflicts of interest; global financial conditions; and the implementation of the Labour Contract Law in the People's Republic of China in 2008.  In addition to the foregoing risk factors, there are also risks related to doing business in China which include, but are not limited to:  state ownership; government sector intervention; foreign investment; repatriation of profit and currency conversion; tax; shareholders' rights and enforcement of judgements; developing legal system; protection of intellectual property rights; permits and business licenses; appropriation; and availability of land.  Should one or more of these factors materialize, or should our estimates or underlying assumptions prove incorrect, actual results, performance or achievements may vary materially from those described in forward-looking statements.

We caution that the foregoing list of important factors that may affect our future results, performance or achievements is not exhaustive.  When reviewing our forward-looking statements, readers should carefully consider the foregoing factors and other uncertainties and potential events. Additional information about factors that may cause actual results to differ materially from expectations, and about material factors or assumptions applied in making forward-looking statements, may be found under the "Risk Factors" sections in our Annual Information Form and annual MD&A and elsewhere in our filings with Canadian securities regulatory authorities.  Except as required by Canadian securities laws, we do not undertake to update any forward-looking statements, whether written or oral, that may be made from time to time by us or on our behalf; such statements speak only as of the date made.  We cannot assure readers that actual results, performance and achievements will be consistent with these forward-looking statements, and the differences may be material. The forward-looking statements included herein are expressly qualified in their entirety by this cautionary language.

SOURCE Migao Corporation

Helen Lu, Chief Financial Officer, Migao Corporation, 778.375.3247, [email protected]; Jackie Liang, Investor Relations, Migao Corporation, 647.607.1616, [email protected]; To be added to Migao's email distribution list for news releases or to be removed from the list, please send a request to [email protected].