Migao Reports Fiscal 2016 Third Quarter Financial Results

TSX: MGO

TORONTO, Feb. 16, 2016 /CNW/ - Migao Corporation (TSX:MGO), a China-based specialty potash fertilizer producer, today reported financial results for the three and nine month period ended December 31,  2015.

Migao reported revenues of $54.4 million for the third quarter ended December 31, 2015, representing a $71.1million (57%) decrease from $125.5 million for the quarter ended December 31, 2014. The revenue decrease for the quarter ended December 31, 2015, is mainly due to declines in revenue from all products except for hydrochloric acid and ammonium chloride as a result of significant decreases in sales volume, coupled with lower average sales prices for potassium sulphate and compound fertilizers (excluding SQM JV and Yunnna Migao). The impact of sales decrease was partially offset by the effect of higher Canadian dollar / Chinese Yuan RMB exchange rate achieved during the quarter ended December 31, 2015, as compared to one year ago.  Sales volume for potassium sulphate decreased by approximately 77%, potassium nitrate decreased by approximately 69%, compound fertilizers decreased by approximately 46%, potassium chloride (direct sale) decreased by approximately 31% and hydrochloric acid decreased by approximately 20% during the quarter ended December 31, 2015 as compared to the same period one year ago. The significant drops in the sales volumes across the board reflected the weakness in the PRC fertilizer markets which was mainly caused by the slow-down of PRC economy, abundant supplies, intensified competition as well as the change in value added tax regime on fertilizers. Fertilizer sales including imported fertilizers and processed fertilizers in PRC are subject to value added tax ("VAT") ranging from 3% to 13% effective on and from September 1, 2015. Given PRC fertilizer market is rather competitive and fertilizer buyers are sensitive to price change, Migao doesn't expect the additional cost can be 100% transferred to its customers. Average sales prices for hydrochloric acid increased by approximately 55% during the quarter ended December 31, 2015 and the effect of sales price increase for hydrochloric acid out weighted the effect of volume decrease, causing higher overall sales amount for hydrochloric acid as compared with the third quarter of fiscal 2015. Chinese Yuan (RMB) appreciated by approximately 13% against Canadian dollar during the quarter ended December 31, 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 quarters ended December 31, 2015. Revenue for the nine month period ended December 31, 2015 was $342.4 million as compared with $235.7 million for the same period one year ago, representing an increase of 106.7 million (45%). The increase in revenue was mainly attributed to significantly higher volumes of potassium chloride (direct sale) sold in the nine month period ended December 31, 2015.

Gross profit was $4.6 million for the quarter ended December 31, 2015 compared to gross profit of $10.3 million for the same quarter one year ago. The change in gross profit for the current quarter was mainly due to decreases in gross profit from sales of potassium sulphate as a result of declines in average sales price and sales volume in the current quarter. However the decrease in gross profit from sales of potassium sulphate was partly offset by the increases in gross profits from sales of potassium chloride, potassium nitrate, hydrochloric acid, and ammonium chloride, primarily as a result of higher gross margin for these products realized in the current quarter.  Demands for hydrochloric acid remained tepid due to the slowing down of the Chinese economy and the weak performance of its export sectors.  Gross profit for the nine month period ended December 31, 2015 was $26.3 million as compared with $25.7 million in the same period one year ago.                 

Selling, general and administrative expenses were $10.8 million and $33.1 million for the three month and nine month period ended December 31, 2015, down by $0.8 million for the three month period and up by $5.1 million for the nine month period from $11.6 million and 28.0 million for the three and nine month period ended December 31, 2014, primarily due to changes in selling expenses which moved in the same direction as the volume of products delivered during the respective periods. Finance costs were $2.1 million and $9.7 million for the three and nine month period ended December 31, 2015 as compared with $1.4 million and $5.8 million for the three and nine month period ended December 31, 2014. The increase in finance costs was primarily due to higher level of interest bearing debts during the three and nine  months ended December 31, 2015, compared to the same periods last year.

As a result, for the quarter ended December 31, 2015 Migao reported a net loss of $7.3 million or $(0.14), per basic and diluted share, compared to a net profit of $5.0 million or $0.09 per basic and diluted share for the same quarter one year ago.  Net loss was $15.6 million or $(0.30) per basic share for the nine  month period ended December 31, 2015 as compared to a net profit of $5.1 million or $0.10 per basic share for the same nine month period last year.

For the quarter ended December 31, 2015, average selling price for potassium nitrate was RMB3,822($798) per tonne, RMB2,626($549) per tonne for potassium sulphate, RMB3,310($691) for compound fertilizers and RMB2,109($441) per tonne for potassium chloride,  compared to RMB3,559($657) per tonne for potassium nitrate, RMB3,431($634) per tonne for potassium sulphate, RMB2,895($535) per tonne for compound fertilizers and RMB2,052($379) per tonne for potassium chloride in the third quarter of fiscal 2015.

As at December 31, 2015, Migao reported cash and restricted cash of $129.4 million and working capital of $174.2 million.

At December 31, 2015, Migao had $154.3 million of inventory, which included $46.3 million (105,809 tonnes) of potassium chloride inventory on hand with an average delivered price of $437 per tonne (March 31, 2015 - $417), and $10.6 million of various other raw materials in stock, and 30.2 million of goods in transit comprising of potassium chloride with average delivered price of $451 per tonne. Also included in inventory was $64.4 million (155,494 tonnes) of finished goods inventory on hand, including co-products.  During the quarter ended December 31,  2015, Migao (excluding SQM JV and Eurochem JV) sold 15,462 tonnes of potassium nitrate, 20,160 tonnes of potassium sulphate, 3,786 tonnes of compound fertilizers and 58,743 tonnes of potassium chloride (direct sale).

Cash and cash equivalents was $4.7 million as at December 31, 2015, compared to $14.7 million as at March 31, 2015. The decrease in cash and cash equivalents during the nine  month period ended December 31, 2015 was mainly a combined result of $4.5 million of cash inflows from operations, a net $41.1 million of cash used in investing activities mainly as a result of $39.4 million of cash invested structured deposits and $1.7 million of cash used in equipment purchase,  as well as a net cash inflow of $26.4 million from financing activities primarily as a result from $113.9 million of cash inflow from loan drawdowns, reduced by $77.9 million of cash used in loan repayments, and $9.7 million used in loan interest payments. The impact from the changes in foreign exchange rates on the cash flow was approximately $0.2 million for the period ended December 31, 2015.

SUMMARY FINANCIAL RESULTS

In $'000 except per share data
		3 months ended	3 months ended	YTD	YTD
		December 31, 2015	December 31, 2014	fiscal 2016	fiscal 2015
Revenue		54,362	125,493	342,405	235,743
Gross profit (loss)		4,648	10,253	26,293	25,749
Gross profit (loss) (% of revenue)		8.6%	8.2%	7.7%	10.9%
Profit (loss)		(7,306)	4,952	(15,591)	5,099
EBITDA		(3,172)	7,872	(448)	15,843
Earnings per share
	Basic	(0.14)	0.09	(0.30)	0.10
	Diluted	(0.14)	0.09	(0.30)	0.10
Weighted average number of shares (in millions of shares)
	Basic	52.5	52.5	52.5	52.5
	Diluted	52.5	52.8	52.5	53

Balance Sheet Highlights

In $'000 except ratio
		December 31, 2015			March 31, 2015
Current ratio		1.38:1			1.50:1
Cash, cash equivalents and restricted cash		129,449			118,349
Working capital		174,211			175,755
Total assets		809,697			696,239
Total liabilities		466,732			355,062
Total equity		342,965			341,177
Long term debt to equity ratio		0.002:1			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.

As at December 31, 2015, Migao anticipates to contribute an additional US$10.79 million to the capital of Eurochem JV in the 2016 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 guarantee contract expired without renewal as of December 31, 2015.  

3)      Yunnan facility update

The construction of Yunnan Migao's 60,000 tonne per annum potassium nitrate production line was substantially completed in the quarter ended December 31, 2015. The commissioning of the production line commenced in December 2015 and ended in January 2016 with successful qualify assurance check.

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.

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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]