Migao Reports Fiscal 2015 Annual Financial Results

TSX:  MGO

TORONTO, June 29, 2015 /CNW/ - Migao Corporation (TSX:MGO), a China-based specialty potash fertilizer producer, today reported financial results for the three and twelve month periods ended March 31,  2015.

Migao reported revenues of $444.5 million for the year ended March 31, 2015, representing $75.2 million (20%) increase from $369.3 million for the year ended March 31, 2014. The revenue increase for the year ended March 31, 2015, is mainly due to increased sales of potassium sulphate, potassium nitrate and potassium chloride (direct sales) primarily as a result of higher sales volumes for these products, coupled with higher average selling price for potassium sulphate achieved during the year ended March 31, 2015, compared with one year ago. Market conditions for potassium sulphate were strong throughout the fiscal year 2015.  The above sales increases were partly offset by aggregate decreases of approximately $51.0 million in the sales of compound fertilizers, ammonium chloride as well as direct sales of compound fertilizers. No direct sales of compound fertilizers occurred in the year ended March 31, 2015. The sales decrease in compound fertilizers and ammonium chloride were mainly caused by significant decreases in sales volume as well as lower average selling prices for these products during 2015 fiscal year as compared with fiscal 2014. PRC market demands for potassium nitrate, compound fertilizers and ammonium chloride remained weak throughout the year ended March 31, 2015. 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. The appreciation of Chinese Yuan (RMB) against Canadian dollar also contributed to the higher dollar sales reported for the year ended March 31, 2015. 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 and the year ended March 31, 2015.

Revenue for the quarter ending March 31, 2015 were $208.7 million compared with $233.9 million for the quarter ending March 31, 2014. The decrease in revenue for the current quarter was mainly attributed to lower average sales prices realized from all products except for potassium sulphate during the quarter, coupled with decreased sales volume for potassium sulphate, potassium nitrate, ammonium chloride and compound fertilizers, compared with the same quarter last year.  

Gross profit for the quarter and the year ended March 31, 2015, was $21.2 million and $47.0 million respectively, compared with the gross profit of $0.3 million and gross loss of $9.6 million for the same periods one year ago. The increases in gross profit registered during the quarter and the year ended March 31, 2015 were mainly due to higher gross profit margin realized from sales of potassium sulphate, potassium chloride (direct sales) and hydrochloric acid, coupled with higher sales volumes for these products as compared with the same periods 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. The improvement in the profitability of potassium chloride (direct sales) reflected improved potash market condition as well as Migao's comparative advantage in the sourcing of low cost potassium chloride. The effect of higher gross profit from the sale of potassium sulphate, hydrochloric acid and potassium chloride (direct sales) was partially offset by the decreases in gross profit of other products during the quarter and the year ended March 31, 2015. During the quarter and the year ended March 31, 2015, Migao had a gross loss from the sales of potassium nitrate and ammonium chloride. In addition to depressed market price, the profitability of Migao's potassium nitrate has also been negatively impacted by rising energy costs, especially the cost of natural gas which accounts for approximately 15% of the production cost of potassium nitrate during the year ended March 31, 2015. Natural gas accounted for approximately 13% of the production cost during the year ended March 31, 2014.   

Selling, general and administrative expenses were $40.0 million for and the year ended March 31, 2015, up by $9.8 million from $30.2 million for the year ended March 31, 2014 last year. Finance costs were $7.6 million, up by $2.2 million from $5.4 million for the year ended March 31, 2014.

During the year ended March 31, 2015, Migao's expenses related to inventory write-down as well as impairment charge on property, plant and equipment decreased by $20.9 million in aggregate as compared with the year ended March 31, 2014.

As a result, for the quarter and the year ended March 31, 2015 Migao reported a net profit of $7.6 million or $0.14 and $12.7 million or $0.24  respectively, per basic and diluted share, as compared with a net loss of $22.6 million or ($0.43) and $58.2 million or ($1.11) per basic and diluted share for the same periods last year. For the quarter ended March 31, 2015, average selling price for potassium nitrate was RMB3,602 ($717) per tonne, RMB3,405 ($678) per tonne for potassium sulphate, RMB2,992 ($595) for compound fertilizers and RMB2,066 ($411) per tonne for potassium chloride, as compared with RMB3,841 ($694) per tonne for potassium nitrate, RMB3,021 ($546) per tonne for potassium sulphate, RMB3,117 ($564) per tonne for compound fertilizers and RMB2,208 ($399) per tonne for potassium chloride the same period one year ago.

As at March 31, 2015, Migao reported cash and restricted cash of $118.3 million and working capital of $175.8 million.

At March 31, 2015, Migao had $110.9 million of inventory, which included $35.8 million (85,893 tonnes) of potassium chloride inventory on hand with an average delivered price of $417 per tonne (March 31, 2014 - $374), and $5.7 million of various other raw materials in stock, and 58.2 million of goods in transit comprising of potassium chloride with average delivered price of $399 per tonne. Also included in inventory was $8.3 million (90,695 tonnes) of finished goods inventory on hand, including co-products.  During the year ended March 31, 2015, the Migao sold 89,988 tonnes of potassium nitrate, 327,753 tonnes of potassium sulphate, 386,621 tonnes of potassium chloride (direct sale) as well as 42,271 tonnes of compound fertilizers. During fiscal 2014, sales volume was 86,748 tonnes for potassium nitrate, 214,548 tonnes for potassium sulphate, 345,594 tonnes for potassium chloride (direct sale) and 83,661 tonnes for compound fertilizers.  

Cash and cash equivalents was $14.7 million as at March 31, 2015, compared with $13.8 million as at March 31, 2014. The increase in cash and cash equivalents during the year  ended March 31, 2014 was mainly a combined results of $31.6 million cash inflows from operations, a net $0.7 million of cash used in investing activities mainly as a result of $16.7 million of cash used in the purchase of plant and equipment and payments for land use rights deposits, $21.6 million of net cash inflow from the disposition of Yunnan Migao and Sichuan Ruigao Logistic Co., Ltd, 4.1 million of cash inflow from interest income received and $8.3 million of cash used in the share capital contribution to Eurochem JV, as well as a net $37.6 million of cash used in financing activities primarily from repayments of loan principal and loan interest for $111.7 million in total, offset by $74.1 million of cash inflows from new loan drawdowns.  The impact from the changes in foreign exchange rates on the cash flow was approximately $6.2 million for the year ended March 31, 2015.

SUMMARY FINANCIAL RESULTS

In $'000 except per share data






3 months ended

3 months ended

YTD

YTD


March 31, 2015

March 31, 2014

fiscal 2015

fiscal 2014

Revenue

208,744

233,934

444,487

369,312

Gross profit (loss)

21,225

269

46,974

(9,567)

Gross profit (loss) (% of revenue)

10.2%

0.1%

10.6%

(2.6%)

Profit (loss)

7,555

(22,642)

12,654

(58,223)

EBITDA

13,087

(14,277)

28,930

(42,434)

Earnings per share






Basic

0.14

(0.43)

0.24

(1.11)


Diluted

0.14

(0.43)

0.24

(1.11)

Weighted average number of shares





(in millions of shares)






Basic

52.5

52.5

52.5

52.5


Diluted

52.9

52.5

52.9

52.5

 

Balance Sheet Highlights

In $'000 except ratio





March 31, 2015

March 31, 2014


Current ratio

1.50:1

1.41:1






Cash, cash equivalents and restricted cash

118,349

152,832






Working capital

175,755

148,287






Total assets

696,239

647,169






Total liabilities

355,062

364,785






Total equity

341,177

282,384


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

On November 28, 2013, Migao entered into a joint venture shareholder agreement ("Eurochem JV Agreement") with Eurochem International Holding B.V. ("Eurochem") to establish a joint venture, Eurochem Migao Limited ("Eurochem JV").  In accordance with the Eurochem JV Agreement, Eurochem JV was to be incorporated in Hong Kong to enter into certain business operations in China directly and through its subsidiaries.

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, 2014 Migao contributed total capital of US$7.21 million (approximately $8.3 million) and Eurochem contributed total capital of US$18 million (approximately $20 million) to 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 March 31, 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 entered into the above transaction with the anticipation that prepayments for Migao's raw material purchase will be reduced in future with more utilizations of letter of credit in purchase settlements and less amounts of bank deposits or notes receivable will be required to be pledged with the bank than without the above bank facility. This helps to reduce the amount of cash tied up in working capital and associated costs, thus improving the company's liquidity position and further enhancing Migao's competitive advantage in access to low cost raw materials.

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 March 31, 2015, US$12.2 million (approximately $15.5 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.

4) Reform on natural gas pricing

The PRC government had previously implemented a series of natural gas price increased in the past few years to adjust the imbalance between demand and supply of natural gas in China.  Effective April 1, 2015, the National Development and Reform Commission of PRC announced a major reform in natural gas prices. The maximum city gate price for incremental natural gas would be reduced by RMB 0.44/cubic meter and maximum city gate price for stock natural gas would increase by RMB 0.04/cubic meter.  The current gate price for natural gas supplied to Migao is RMB 2.50 per cubic meter.  The reform aims to reduce the pricing differential between incremental gas and stock gas pricing and stabilize non-residential usage natural gas price.  This announcement also encourages natural gas pricing reform and market pricing of natural gas for the fertilizer companies. Management is closely monitoring the future development of natural gas pricing following the announcement and assessing its impact on the Migao.

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.

To be added to Migao's email distribution list for news releases or to be removed from the list, please send a request to info@migaocorp.com.

SOURCE Migao Corporation

For further information: Helen Lu, Chief Financial Officer, Migao Corporation, 778.375.3247, Helen.lu@migaocorp.com; Jackie Liang, Investor Relations, Migao Corporation, 647.607.1616, investors@migaocorp.com

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