Sino-Forest Achieves Strong Fourth Quarter and Annual 2009 Results
TORONTO, March 16, 2010 /CNW/ - Sino-Forest Corporation ("Sino-Forest") (TSX:TRE) today announced its financial results for the fourth quarter and full year ended December 31, 2009. All amounts in this news release are expressed in U.S. dollars unless otherwise indicated.
Financial and Operating Highlights for 2009 compared to 2008:
- Revenue of $1.2 billion, increased 38% year over year
- Diluted Earnings Per Share of $1.38, up 11%
- Sold 14 million cubic metres (m(3)) of plantation fibre, increased
40%
- Increased plantation area under management 48% to 512,700 ha at year
end
- Raised gross proceeds of approximately $1.1 billion primarily to fund
growth by securing additional long-term fibre with capped acquisition
costs in strategic locations
(US$ millions, Three months ended Twelve months ended
except margins December 31 December 31
and per share 2009 2008 Change 2009 2008 Change
amounts) $ $ % $ $ %
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Revenue 469.6 281.9 66.6 1,238.2 896.0 38.2
Gross Profit(1) 147.3 122.0 20.8 440.9 366.0 20.5
Gross Profit
Margin 31.4% 43.3% (11.9%pt) 35.6% 40.8% (5.2%pt)
EBITDA(2) 356.0 194.1 83.4 898.3 597.1 50.4
Net Income 112.7 95.5 18.0 286.4 228.6 25.3
Diluted
Earnings Per
Share 0.49 0.51 (3.0) 1.38 1.24 11.3
Cash Flow From
Operating
Activities 226.0 215.0 5.1 784.5 487.2 61.0
See notes (1) and (2) at end of this news release.
Sino-Forest Chairman and CEO Allen Chan said, "We are delighted to report that Sino-Forest had another excellent year with very strong operating and financial performance in 2009. Our company benefited from China's 4 trillion yuan economic stimulus plan, which bolstered demand for wood fibre and helped log prices rebound during the second half of last year. Our record results also reflect our proven track record and the flexibility of our multiple plantation models, which enabled us to sustain attractive returns despite the economic slowdown in the first half of 2009."
"We are very grateful to our existing and new shareholders and lenders who have been supportive by participating in our funding initiatives. Proceeds from our financings in 2009 of approximately US$1.1 billion are allowing Sino-Forest to, among other things, lock in access to additional plantation fibre and lands at fair and attractive prices in commercially strategic locations. Increasingly under our integrated plantation model, we plan to convert lower-yielding forests into fast-growing high-yielding plantations," added Mr. Chan.
Business Segment Highlights
Total revenue increased 38.2% to US$1,238.2 million in 2009, mainly due to the increase in sales from our wood fibre operations.
Wood Fibre Operations
Revenue from sales of plantation fibre increased 39.2% to $954.2 million in 2009, mainly due to increase in volume of fibre sold in 2009.
Year ended December 31, 2009 Year ended December 31, 2008
Plantation Sales per Total Sales per Total
Model Hectares hectare revenue Hectares hectare revenue
$ $'000 $ $'000
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Purchased
plantations 58,350 9,557 557,666 86,067 6,040 519,872
Integrated
plantations 44,057 8,775 386,595 14,071 11,313 159,185
Planted
plantations 6,782 1,465 9,933 3,807 1,667 6,347
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Total 109,189 8,739 954,194 103,945 6,594 685,404
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The total volume of fibre sold in 2009 increased 40.4% to approximately 14.2 million m(3), with approximately 9.3 million m(3) from purchased and planted plantations and approximately 4.9 million m(3) from integrated plantations. During 2008, we sold approximately 10.2 million m(3) with approximately 8.6 million m(3) from purchased and planted plantations and approximately 1.6 million m(3) from integrated plantations.
The average yield of fibre sold from purchased and planted plantations was up 48.7% in 2009 to 142 m(3) per hectare compared to 96 m(3) per hectare in 2008. In both years, we obtained an average selling price of approximately $61 per m(3).
The average yield of logs sold from integrated plantations in 2009 was 113 m(3) per hectare and for which we obtained an average selling price of $78 per m(3). During 2008, the average yield of integrated plantation logs was 111 m(3) per hectare and obtained an average selling price of $102 per m(3). The average selling price of $102 per m(3) in 2008 included harvesting costs as harvesting was organized and managed by us while the average selling price of $78 per m(3) in 2009 excluded harvesting costs as the harvesting was managed by the buyer.
Plantation fibre sales comprised 77.1% of total revenue in 2009, compared to 76.5% in 2008.
At year end 2009, total plantation area under management was 512,700 hectares, up 48% from the end of 2008. This excludes approximately 155,600 hectares acquired from Mandra Forestry as the acquisition was completed in February 2010.
According to the preliminary forest asset valuation conducted by independent forestry consultants, Poyry Forestry Industry Pte Ltd., the estimated volume of Sino-Forest's merchantable standing timber increased 67.1% to approximately 62.7 million m(3) by year end 2009. The valuation of Sino-Forest's forest assets as at December 31, 2009, based on a single rotation, was approximately $2.30 billion, and based on a perpetual rotation was approximately $2.13 billion (using a pre-tax discount rate of 11.5%); this represents increases of 39.7% and 25.7%, respectively, from the 2008 valuations. A full copy of the valuation report will be posted on our website www.sinoforest.com under "Filings" and also filed on www.sedar.com on or about March 31, 2010.
Other Fibre
Revenue from sales of imported wood products increased 67.2% from $139.7 million in 2008 to $233.5 million in 2009. This increase was primarily due to the higher volume of Russian logs sold.
Revenue from sales of domestic wood logs decreased 68.3% from $13.8 million in 2008 to $4.4 million in 2009.
Other fibre sales comprised 19.2% of total revenue in 2009, compared to 17.1% of total revenue in 2008.
Manufacturing and Other Operations
Revenue from our manufacturing and other operations decreased 19.4% from $57.1 million in 2008 to $46.1 million in 2009, mainly due to the lower sales from the Hunan production facilities.
Gross Profit
Gross profit increased 20.5%, from $366.0 million in 2008 to $440.9 million in 2009. Gross profit margin, being gross profit expressed as a percentage of revenue, decreased from 40.8% in 2008 to 35.6% in 2009, mainly due to the reduced gross profit margin from plantation fibre operations.
Selling, General and Administration Expenses
Our selling, general and administration expenses increased 20.8%, from $53.4 million in 2008 to $64.5 million in 2009. The increase was due primarily to additional staff complement, increased accrued incentive compensation and increased research & development expenses.
Net Income
As a result of the foregoing, net income for the year increased 25.3%, from $228.6 million in 2008 to $286.4 million in 2009. Overall net income as a percentage of revenue decreased from 25.5% in 2008 to 23.1% in 2009.
Cash Flows from Operating Activities of Continuing Operations
Net cash provided from operating activities increased 61.0% from $487.2 million in 2008 to $784.5 million in 2009. This was due to the increase in cash provided by operations and cash provided by a reduction of working capital, which resulted mainly from a decrease in accounts receivables in wood fibre operations.
Capital Expenditures
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3 months ended December 31 12 months ended December 31
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2009 2008 2009 2008
----------------------------------------------------------------
Hec- Hec- Hec- Hec-
tares $ in M tares $ in M tares $ in M tares $ in M
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Tree
acqui-
sition 76,431 338.6 64,302 271.3 255,503 1,016.4 127,834 646.4
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Re-planting
& maintenance
of plantations 8.1 10.7 36.3 26.1
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Panel
manufacturing
and others 8.3 5.0 19.1 30.1
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355.0 287.0 1,071.8 702.6
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In 2009, we acquired a total of 255,503 hectares of tree plantations, of which 89% are under our long-term master agreements in the provinces of Guangxi, Hunan, Yunnan and Jiangxi.
We replanted a total of approximately 18,657 hectares of plantation land in 2009. Expenditures for re-planting and maintenance included various costs for plantation management, land leases, planting, developing seedlings, fertilization, insecticide, labour and plantation maintenance service fees. Capital expenditures for manufacturing plants included the costs of constructing the facilities and purchasing and installing production line equipment.
The difference between the cash outlays for our forestry plantations in the consolidated statements of cash flows and the above capital expenditures on plantations was due to non-cash transactions such as the movement of accounts payable and capitalization of deposit paid for the acquisition of plantations from other assets to timber holdings.
For fiscal 2010, capital expenditures are expected to be approximately $1.3 billion for plantation acquisitions, replanting and maintenance, and approximately $30 million for the development of manufacturing facilities. These acquisition levels will be adjusted as necessary given future changes in the economic climate in the PRC.
Outlook
Although China's Central Government aims to tighten its credit lending in 2010 to avoid the economy from over-heating, economists generally expect that credit growth will nonetheless remain at the double-digit level with GDP estimated to grow approximately 6% per annum. In addition, China has committed to build over four million affordable housing units over the next three years. Recent policy initiatives are expected to encourage urbanization, so that an estimated 300 million rural inhabitants are expected to migrate into cities over the next decade resulting in higher income and consumption. This movement is expected to create a surge in demand for new town developments, infrastructure and wood products for housing and interior decoration products.
China's chronic wood fibre deficit is expected to continue to increase during this decade due to increased demand outpacing availability of supply. Moreover, China is aiming to increase the proportion of energy generated from non-fossil fuels such as bio-fuels.
Regarding the reform of state-owned forest plantations and the commercialization of their management, we are hopeful that China's new forestry policy will be rolled out in 2010. We believe that Sino-Forest is well positioned to provide plantation management expertise and investment capital in cooperation with local forestry authorities to achieve this important and ambitious goal.
Our BVI subsidiaries deriving income from sources in the PRC are subject to PRC enterprise income tax on a deemed profit basis. The deemed profit percentage applied by management to plantation fibre sales is 10% for 2009 and prior years. The PRC tax authorities issued a Circular in February 2010 which states that the deemed profit percentage for certain activities should be a minimum of 15%. The activities described that would be subject to the minimum 15% deemed profit percentage appear to include sales of plantation fibre. The scope of the application of this provision is uncertain. Management expects that this will impact our accounting for uncertainty in income tax and will result in an increase to our tax related contingency recorded on our financial statements. While we continue to assess the impact, based on current information and where the minimum 15% deemed profit percentage is applied, we expect that our tax provision may increase by an additional amount of between 5 to 10 cents per share over the 2010 fiscal year, thus reducing our reported earnings per share by the same amount. We do not expect there to be any impact on revenue, gross margin, income before tax or cash flows during the year.
With strong liquidity on hand, we plan on continuing to accelerate the execution of our master agreements. Income generated from our growing integrated plantation model will fund our replanting expenditures. We are confident that Sino-Forest will continue to lead its industry, with a strong market position, unmatched silviculture and market knowledge, and consistent operational excellence.
Notice of Conference Call
Sino-Forest will hold an investor conference call to further discuss its fourth quarter and year-end 2009 operating and financial results on March 16, 2010 at 8:30 am EST / 8:30 pm HKT, follow by a question and answer session. The Company will only take questions from research analysts covering Sino-Forest. To participate, please dial +1-647-427-7450 for local and international callers. Or for toll-free access, dial 1-888-231-8191 for North America, 800-901-563 for Hong Kong, or 800-101-2020 for Singapore.
Alternatively, to listen to the live webcast in a listen-only mode and replay of webcast, click on the following link: http://www.sinoforest.com/earningsreleases.asp or go to Sino-Forest's website under "Investor Relations - Earnings Releases".
About Sino-Forest Corporation
Sino-Forest Corporation 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. The Corporation'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, as well as 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.
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. Words such as "expects", "anticipates", "intends", "plans", "believes", "estimates", or similar expressions, are forward-looking statements. Forward-looking statements include, without limitation, the information concerning possible or assumed future results of operations of Sino-Forest. These statements are not historical facts but instead represent only Sino-Forest's expectations, estimates and projections regarding future events. These statements are not guarantees of future performance and involve assumptions and risks and uncertainties that are difficult to predict. Therefore, actual results may differ materially from what is expressed, implied or forecasted in such forward-looking statements. In addition to the factors Sino-Forest currently believes to be material such as, but not limited to, 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 the relationship with local plantation land owners and/or plantation land use rights holders, 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, evaluation of our provision for income and related taxes and economic, political and social conditions and government policy in the PRC, other factors not currently viewed as material could cause actual results to differ materially from those described in the forward-looking statements. Although Sino-Forest has attempted to identify important risks and factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors and risks that cause actions, events or results not to be anticipated, estimated or intended. Accordingly, readers should not place any undue reliance on forward-looking statements. The Company does not undertake any obligation to update or release any revisions to these forward-looking statements to reflect events or circumstances after the date of this report, 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)
Years ended December 31, 2009 2008
$ $
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Revenue 1,238,185 896,045
Costs and expenses
Cost of sales 797,292 530,083
Selling, general and administration 64,488 53,372
Depreciation and amortization 4,693 3,206
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866,473 586,661
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Income from operations before the undernoted 371,712 309,384
Interest expense (70,977) (51,933)
Interest income 9,691 12,604
Exchange losses (4,958) (4,735)
Loss on changes in fair value of financial
instruments (417) (1,839)
Other income 1,600 1,946
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Income before income taxes 306,651 265,427
Provision for income taxes (27,864) (24,105)
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Net income from continuing operations 278,787 241,322
Net income (loss) from discontinued operations 7,583 (12,729)
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Net income for the year 286,370 228,593
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Earnings per share
Basic 1.39 1.25
Diluted 1.38 1.24
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Earnings per share from continuing operations
Basic 1.35 1.32
Diluted 1.34 1.31
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Earnings (losses) per share from discontinued
operations
Basic 0.04 (0.07)
Diluted 0.04 (0.07)
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Retained earnings
Retained earnings, beginning of year 769,557 540,964
Net income for the year 286,370 228,593
Transfer to statutory reserve (1,670) -
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Retained earnings, end of year 1,054,257 769,557
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Expressed in thousands of United States dollars)
Years ended December 31, 2009 2008
$ $
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Net income for the year 286,370 228,593
Other comprehensive income:
Unrealized gains on foreign currency
translation of self-sustaining operations 3,819 108,038
Unrealized gains (losses) on financial assets
designated as available-for-sale, net of tax
of $1,403 (2008: $Nil) 8,498 (1,494)
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Other comprehensive income 12,317 106,544
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Comprehensive income 298,687 335,137
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CONSOLIDATED BALANCE SHEETS
(Expressed in thousands of United States dollars)
As at December 31, 2009 2008
$ $
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ASSETS
Current
Cash and cash equivalents 1,102,366 441,171
Short-term deposits 70,387 45,784
Accounts receivable 282,306 225,753
Inventories 45,978 43,200
Prepaid expenses and other 54,747 21,768
Convertible bonds 29,446 2,659
Assets of discontinued operations 1,531 31,122
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Total current assets 1,586,761 811,457
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Timber holdings 2,183,489 1,653,306
Capital assets, net 77,377 63,704
Other assets 116,272 75,457
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3,963,899 2,603,924
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Bank indebtedness 103,991 67,188
Accounts payable and accrued liabilities 250,287 179,903
Income taxes payable 7,346 6,383
Liabilities of discontinued operations 12,156 32,004
Derivative financial instrument - 5,214
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Total current liabilities 373,780 290,692
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Long-term debt 925,466 714,468
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Total liabilities 1,299,246 1,005,160
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Commitments and Contingencies
Shareholders' equity
Equity portion of convertible senior notes 158,883 70,462
Share capital 1,213,495 539,315
Contributed surplus 12,200 7,599
Accumulated other comprehensive income 224,148 211,831
Statutory reserve 1,670 -
Retained earnings 1,054,257 769,557
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Total shareholders' equity 2,664,653 1,598,764
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3,963,899 2,603,924
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in thousands of United States dollars)
Years ended December 31, 2009 2008
$ $
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income for the year 286,370 228,593
Net (income) loss from discontinued operations (7,583) 12,729
Add (deduct) items not affecting cash
Depletion of timber holdings included in cost
of sales 521,889 284,532
Depreciation and amortization 4,693 3,206
Accretion of convertible senior notes 13,689 4,769
Stock-based compensation 4,601 4,276
Impairment of capital assets - 219
Loss on changes in fair value of financial
instruments 417 1,839
Unrealized exchange losses 1,880 5,604
Interest income from Mandra (1,200) (1,200)
Other 957 2,656
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825,713 547,223
Net change in non-cash working capital balances (41,196) (60,040)
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Cash flows from operating activities of
continuing operations 784,517 487,183
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Cash flows used in operating activities of
discontinued operations (826) (3,826)
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CASH FLOWS USED IN INVESTING ACTIVITIES
Additions to timber holdings (1,032,009) (656,727)
Increase in other assets (38,041) (9,554)
Additions to capital assets (11,649) (29,187)
Increase in non-pledged short-term deposits (10,942) (5,604)
Business acquisition - (1,928)
Acquisition of convertible bonds (200) -
Proceeds from disposal of capital assets 216 8
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Cash flows used in investing activities (1,092,625) (702,992)
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Cash flows from (used in) investing activities
of discontinued operations 24,120 (1,236)
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CASH FLOWS FROM FINANCING ACTIVITIES
Payment on deferred financing costs (27,591) (9,135)
Payment on derivative financial instrument (5,781) (4,919)
Increase in bank indebtedness 36,534 16,031
Increase in pledged short-term deposits (13,633) (16,314)
Issuance of shares, net of issue costs 652,474 1,591
Increase in long-term debt 460,000 345,000
Repayment of long-term debt (150,000) -
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Cash flows from financing activities 952,003 332,254
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Cash flows used in financing activities of
discontinued operations (5,972) (460)
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Effect of exchange rate changes on cash and
cash equivalents (22) 1,558
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Net increase in cash and cash equivalents 661,195 112,481
Cash and cash equivalents, beginning of year 441,171 328,690
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Cash and cash equivalents, end of year 1,102,366 441,171
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Supplemental cash flow information
Cash payment for interest charged to income 52,363 38,644
Interest received 3,723 9,837
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For further information: DAVE HORSLEY, Senior Vice President and Chief Financial Officer, Tel: (905) 281-8889, Email: [email protected]; LOUISA WONG, Senior Manager, Investor Communications & Relations, Tel: +852 2514 2109, Email: [email protected]
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