Sino-Forest Diluted EPS Increased 82% to $0.24 in Second Quarter 2008; Gross Margin from Integrated Operations $40 per m(3)



    TORONTO, Aug. 12 /CNW/ - Sino-Forest Corporation ("Sino-Forest") (TSX:TRE
and TRE.S) announced today outstanding financial results for the three and six
month periods ended June 30, 2008. All amounts in this release are expressed
in U.S. dollars unless otherwise indicated.

    
    Financial Highlights

    -   In the second quarter, Revenue increased 45%, EBITDA 72%, and Net
        Income 98%
    -   Diluted earnings per share rose 82% in the quarter, 49% year to date
    -   Sino-Forest issued an offering of $345 million of convertible senior
        notes to fund new tree acquisitions


                       Three months ended June 30   Six months ended June 30
    (US$ millions,         2008   2007(3)  Change     2008   2007(3)  Change
     except margins and        (Restated)                 (Restated)
     per share amounts)       $        $        %        $        $        %
    -------------------------------------------------------------------------
    Revenue               187.1    128.8     45.3    323.3    241.5     33.8
    Gross Profit(1)        67.2     42.1     59.6    114.1     74.2     53.8
    Gross Profit Margin    35.9     32.7  3.2%pts     35.3     30.7  4.6%pts
    EBITDA(2)             106.2     61.7     72.2    179.9    108.6     65.5
    Net Income             43.4     21.9     98.1     57.9     33.4     73.3
    Diluted Earnings
     Per Share             0.24     0.13     81.6     0.31     0.21     48.9
    Cash Flow From
     Operating Activities 100.2     18.7    436.2    132.3     65.0    103.5

    Note: Footnotes (1), (2) and (3) at end of this release
    

    Allen Chan, Chairman and CEO of Sino-Forest Corporation, said, "Even
though the second quarter is usually our second weakest quarter of the year
due to seasonality, we are proud to report strong operating and financial
results, while maintaining a solid balance sheet. The key contributing factor
to this favourable performance is related to the gross margin earned on
harvesting and sales of logs from our integrated plantation operations. The
cost of harvesting was much lower in the second quarter compared to the first
quarter, and the average selling price increased 4% to $107 per m(3). As a
result, we recorded a gross profit margin of $40 per m(3) at our integrated
plantation operations, which exceeded both our guidance of $20 to $23 per m(3)
and our first quarter result of $28 per m(3). As we continue to ramp up our
integrated plantation operations this year, we will be on track to begin
large-scale replanting in Hunan in 2009."
    "At our purchased and planted plantations, we recorded a consolidated 7%
increase in log prices (excluding currency appreciation) compared to a year
ago."
    "We are also very pleased to have entered into another long-term master
agreement to acquire 200,000 hectares of trees at a cost not to exceed Rmb350
m3 in Fujian Province - located along the south-eastern costal area, and under
China's 11th Five-year Plan, designated among the top three provinces to
supply wood fibre to the market. Fujian is a province where we have been
operating since 2001. This strategic acquisition will further strengthen our
position as a leading national supplier of quality wood fibre", added Mr.
Chan.

    Business Segment Highlights

    Revenue

    Total revenue increased 45% to $187 million in the second quarter of 2008
due primarily to higher sales of plantation fibre, specifically integrated
plantations, and manufacturing and other products, offset by a decrease in the
sales of imported wood products.

    
    Wood Fibre Operations

    Plantation Fibre

                               Three months ended         Three months ended
                                    June 30, 2008              June 30, 2007
                                Sales per   Total          Sales per   Total
                       Hectares  hectare  revenue Hectares  hectare  revenue
                                       $    $'000                 $    $'000
    -------------------------------------------------------------------------
    Purchased
     plantations         14,128    5,927   83,732   15,477    4,461   69,036
    Integrated
     plantations          3,209   12,811   41,112        -        -        -
    Planted plantations     328    2,277      747      726    2,028    1,472
    -------------------------------------------------------------------------
    Total                17,665    7,110  125,591   16,203    4,352   70,508
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Plantation fibre revenue increased 78% to $126 million in the second
quarter 2008. The increase was mainly due to the sale of logs harvested from
3,209 hectares of integrated plantations in 2008 compared to none in 2007.
    The total volume of fibre sold during the second quarter was
approximately 1.8 million m(3), with approximately 1.4 million m(3) from
purchased and planted plantations, and approximately 0.4 million m(3) from
integrated plantations.  In the same quarter last year, we sold a total of 1.4
million m(3) from purchased and planted plantations, and no trees from our
integrated plantations.
    The average yield of harvested logs sold under the integrated plantation
was 120 m(3) per hectare and it commanded an average selling price of $107 per
m(3). Gross margin for logs sold under the integrated plantation operations
was 37% or $40 per m(3).
    The average yield of standing timber sold under the purchased and planted
plantations was 96 m(3) per hectare compared to 84 m(3) per hectare same
quarter last year and obtained an average selling price of $61 per m(3)
compared to $52 per m(3) last year - an increase of 17.3% (including 10.2%
appreciation of Renminbi versus US dollars).
    Plantation fibre sales comprised 67% of total revenue in 2008, compared
to 55% in 2007.

    Other Fibre
    Revenue from sales of imported wood products decreased 11%, from $48
million in 2007 to $43 million in 2008. This decrease was primarily due to
lower average selling price as a result of a change of product mix from
expensive wood logs to lower cost but higher margin wood logs.
    Revenue from sales of wood logs decreased 2% to $1 million in 2008 due to
limited harvesting of secondary natural forest as our local partner in Inner
Mongolia decided to wait for further details on the tariffs to be imposed by
the Russian government.
    Other fibre sales comprised 24% of total revenue in 2008, compared to 38%
of total revenue in 2007.

    Manufacturing and Other Operations

    Revenue from our manufacturing and other operations increased 93% from $9
million in 2007 to $18 million in 2008 mainly due to higher revenue from sales
of engineering wood flooring and relatively new processing facilities in Hunan
province.

    Gross Profit

    Gross profit increased 60%, from $42 million in 2007 to $67 million in
2008. Gross profit margin (gross profit as a percentage of total revenue) on
average increased from 33% in 2007 to 36% in 2008 mainly due to the higher
proportion of sales of plantation fibre, which has a higher gross profit
margin compared to other fibre.

    Wood Fibre Operations
    Gross profit margin from sales of purchased and planted plantations
increased from 58% in 2007 to 60% in 2008 due to higher selling prices. The
gross profit margin for sales of logs under the integrated plantation
operations was 37%.
    Gross profit margin from sales of imported wood products increased from
3% in 2007 to 5% in 2008.
    Gross profit margin from sales of wood logs increased from 7% in 2007 to
23% in 2008 as a result of more sales of logs from north-east China which
commanded a higher margin when compared to sales of logs from Inner Mongolia.

    Manufacturing and Other Operations
    Gross loss margin from our manufacturing and other operations increased
from 3% in 2007 to 6% in 2008, primarily due to increased cost of production
at our manufacturing plants. Management is not satisfied with the current
results realized by the Manufacturing segment. We continue to review and
monitor the operations on a quarterly basis for improvements. In the event
that these improvements are not realized, further potential write downs to
reflect the impairment in value may be required.

    Selling, General and Administration Expenses

    Our selling, general and administration expenses increased 1%, from $9.9
million in 2007 to $10.0 million in 2008, due primarily to additional staff
compliment.

    Net Income from Continuing Operations

    As a result of the foregoing, net income from continuing operations for
2008 increased 94%, from $23 million in 2007 to $45 million in 2008. Overall
net profit margin from continuing operations increased from 18% in 2007 to 24%
in 2008.

    Cash Flows from Operating Activities of Continuing Operations

    Net cash provided by operations increased from $19 million to $100
million in second quarter 2008. The increase was primarily due to the increase
in cash provided by working capital mainly resulting from the increase in
accounts payable for imported wood products.

    
    Capital Expenditures

                                 --------------------------------------------
                                            Three months ended June 30
                                 --------------------------------------------
                                              2008                2007
                                 --------------------------------------------
    (in millions)                     Hectares         $  Hectares         $
    -------------------------------------------------------------------------
    Tree acquisition                    14,165     111.0    15,928      76.4
    -------------------------------------------------------------------------
    Re-planting & maintenance of
     plantations                                     4.2                 6.4
    -------------------------------------------------------------------------
    Panel manufacturing and others                   8.5                 1.9
    -------------------------------------------------------------------------
    Total                                          123.7                84.7
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                 --------------------------------------------
                                             Six months ended June 30
                                 --------------------------------------------
                                              2008                2007
                                 --------------------------------------------
    (in millions)                     Hectares         $  Hectares         $
    -------------------------------------------------------------------------
    Tree acquisition                    41,871     188.9    30,344     150.0
    -------------------------------------------------------------------------
    Re-planting & maintenance of
     plantations                                     8.6                 9.8
    -------------------------------------------------------------------------
    Panel manufacturing and others                  18.5                 2.9
    -------------------------------------------------------------------------
    Total                                          216.0               162.7
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    During the second quarter of 2008, a total of $111 million was invested
to acquire 14,165 hectares of trees in Guangxi and other provinces.

    Outlook

    We will continue to focus on acquiring standing timber and improving our
operating practices, given the Central Government's goal to double
fast-growing, high-yield plantations from 7 million hectares to 13 million
hectares by 2015 and its intention to privatize the operation of several
million hectares of state-owned, secondary natural forest in various regions
across China.
    To help finance the expansion of our tree plantations, we issued
convertible senior notes for gross proceeds of US$345 million, which was well
received by international investment markets. As previously announced, a
majority of the proceeds from the offering will fund the acquisition of
200,000 hectares of plantation trees in Fujian Province, over the next 10
years. This successful financing reflects investor confidence in Sino-Forest
as a leading plantation operator and wood fibre supplier in many regions of
China.
    In addition to acquiring standing timber, we will lease land for
large-scale replanting, which will commence next year as part of our
integrated operations. We are confident that we will achieve our target annual
wood fibre output of 15 to 20 million cubic meters by the end of 2010.
    We expect the prices of wood products in China to rise approximately 5 to
10% per annum this year as the Russian government continues to sharply
increase its tariffs on exported logs, as China's huge wood fibre deficit
continues to grow, and as demand for lumber and wood panel rises with
post-earthquake, reconstruction efforts in Sichuan Province.

    Notice of Conference Call

    Sino-Forest will hold an investor conference call to further discuss its
second quarter 2008 financial results on August 12, 2008 at 8:30 am EST / 8:30
pm HKT. To participate, please dial +1-416-695-9761 for local and
international callers or 877-461-2816 for North America toll-free access.
Alternatively, to join the live webcast and replay in a listen-only mode, log
on to Sino-Forest website under "Earnings Release" or go directly to
http://www.sinoforest.com/earningsreleases.asp.

    About Sino-Forest Corporation

    Sino-Forest Corporation is a leading commercial forestry plantation
operator in China. The Canadian company started its operations in 1994 and was
of the first few foreign and privately managed operators involved in forest
products in China. Its principal businesses include the ownership and
management of forestry plantation trees and sales of standing timber, wood
logs and complementary manufacturing of downstream engineered-wood products.
The Corporation's common shares trade on the Toronto Stock Exchange under the
symbol TRE since 1995.

    
    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 and depletion of timber holdings from
    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.

    Note (3) to the Financial Highlights table: Results have been restated to
    reflect the classification of wood chips and commission operations as
    discontinued operations as disclosed in Note 18 Discontinued Operations
    and the adoption of a new accounting policy for uncertainty in income
    taxes in the consolidated financial statements for the year ended
    December 31, 2007.
    

    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. When used in this news release, the words "believe", "intend",
"estimate", "expect", "plan" and similar expressions are intended to identify
forward-looking statements, although not all forward-looking statements
contain such words. These forward-looking statements are based on current
expectations. The results or events predicted in these statements may differ
materially from actual results or events and are no guarantees of future
performance of Sino-Forest. Factors which could cause results or events to
differ from current expectations include, among other things: 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 joint
venture partners, 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, and PRC economic, political and social conditions and
government policy, and stock market volatility, other factors not currently
viewed as material could cause actual results to differ materially from those
described in the forwarding-looking statements. For additional information
with respect to certain of these and other factors, see the reports filed by
Sino-Forest Corporation with applicable Canadian securities administrators.
Sino-Forest Corporation disclaims any intention or obligation to update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise.


    
    CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS

    (Expressed in thousands of    Three months ended        Six months ended
     United States dollars,                  June 30                 June 30
     except for earnings per               (Restated)              (Restated)
     share information)             2008        2007        2008        2007
     (Unaudited)                       $           $           $           $
    -------------------------------------------------------------------------
    Revenue                      187,125     128,764     323,262     241,541

    Costs and expenses
    Cost of sales                119,878      86,636     209,136     167,322
    Selling, general and
     administration                9,981       9,872      21,303      16,637
    Depreciation and
     amortization                  1,071       1,056       2,072       2,199
    -------------------------------------------------------------------------
                                 130,930      97,564     232,511     186,158
    -------------------------------------------------------------------------
    Income from operations
     before the undernoted        56,195      31,200      90,751      55,383
    Interest expense              (9,850)    (11,171)    (20,421)    (22,285)
    Interest income                2,158       3,618       4,753       5,085
    Exchange (losses) gains         (788)      1,926      (3,627)      1,459
    Gains (losses) on changes
     in fair value of financial
     instruments                   1,194         642      (3,341)        328
    Other income                     869         319       1,551         616
    -------------------------------------------------------------------------
    Income before income taxes    49,778      26,534      69,666      40,586
    Provision for income taxes    (5,245)     (3,554)     (9,519)     (5,900)
    -------------------------------------------------------------------------
    Net income from continuing
     operations                   44,533      22,980      60,147      34,686
    Net loss from discontinued
     operations                   (1,132)     (1,070)     (2,219)     (1,266)
    -------------------------------------------------------------------------
    Net income for the period     43,401      21,910      57,928      33,420
    -------------------------------------------------------------------------

    Earnings per share
    Basic                           0.24        0.13        0.32        0.22
    Diluted                         0.24        0.13        0.31        0.21
    -------------------------------------------------------------------------
    Earnings per share from
     continuing operations
    Basic                           0.24        0.14        0.33        0.22
    Diluted                         0.24        0.14        0.33        0.22
    -------------------------------------------------------------------------
    Loss per share from
     discontinued operations
    Basic                          (0.01)      (0.01)      (0.01)      (0.01)
    Diluted                        (0.01)      (0.01)      (0.01)      (0.01)
    -------------------------------------------------------------------------
    Retained earnings
    Retained earnings,
     beginning of period,
     as previously presented     555,491     400,201     540,964     397,380
    Cumulative impact of
     accounting changes
     relating to financial
     instruments                       -           -           -      (8,689)
    -------------------------------------------------------------------------
    Retained earnings,
     beginning of period         555,491      400,201    540,964     388,691
    Net income for the period     43,401       21,910     57,928      33,420
    -------------------------------------------------------------------------
    Retained earnings, end of
     period                      598,892      422,111    598,892     422,111
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


                                  Three months ended        Six months ended
                                             June 30                 June 30
    (Expressed in thousands of             (Restated)              (Restated)
     United States dollars)         2008        2007        2008        2007
     (Unaudited)                       $           $           $           $
    -------------------------------------------------------------------------
    Net income for the period     43,401      21,910      57,928      33,420
    Other comprehensive income:
      Unrealized loss on
       financial assets
       designated as available-
       for-sale, net of tax
       of nil                        (99)          -      (1,048)          -
      Unrealized gains on
       foreign currency
       translation of self-
       sustaining operations      36,737      14,037      99,483      23,127
    -------------------------------------------------------------------------
    Other comprehensive income    36,638      14,037      98,435      23,127
    -------------------------------------------------------------------------
    Comprehensive income          80,039      35,947     156,363      56,547
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    CONSOLIDATED BALANCE SHEETS

                                               As at                   As at
    (Expressed in thousands of         June 30, 2008       December 31, 2007
     United States dollars) (Unaudited)            $                       $
    -------------------------------------------------------------------------

    ASSETS
    Current
    Cash and cash equivalents                204,113                 328,690
    Short-term deposits                       37,011                  22,163
    Accounts receivable                      157,406                 105,329
    Inventories                               45,795                  46,661
    Prepaid expenses and other                31,526                  24,185
    -------------------------------------------------------------------------
    Total current assets                     475,851                 527,028
    -------------------------------------------------------------------------
    Timber holdings                        1,369,700               1,174,153
    Capital assets, net                      100,343                  78,608
    Other assets                              88,616                  57,708
    -------------------------------------------------------------------------
                                           2,034,510               1,837,497
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND SHAREHOLDERS' EQUITY
    Current
    Bank indebtedness                         55,690                  55,383
    Accounts payable and accrued
     liabilities                             140,615                 107,989
    Income taxes payable                       2,473                   1,615
    Liabilities of discontinued operations    36,482                  32,016
    -------------------------------------------------------------------------
    Total current liabilities                235,260                 197,003
    -------------------------------------------------------------------------
    Long-term debt                           442,926                 441,985
    Derivative financial instrument           10,198                  11,211
    -------------------------------------------------------------------------
    Total liabilities                        688,384                 650,199
    -------------------------------------------------------------------------
    Commitments and Contingencies
    Shareholders' equity
    Share capital                            537,522                 537,141
    Contributed surplus                        5,990                   3,906
    Accumulated other comprehensive income   203,722                 105,287
    Retained earnings                        598,892                 540,964
    -------------------------------------------------------------------------
    Total shareholders' equity             1,346,126               1,187,298
    -------------------------------------------------------------------------
                                           2,034,510               1,837,497
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    CONSOLIDATED STATEMENTS OF CASH FLOWS

                                  Three months ended        Six months ended
                                             June 30                 June 30
    (Expressed in thousands of             (Restated)              (Restated)
     United States dollars)         2008        2007        2008        2007
     (Unaudited)                       $           $           $           $
    -------------------------------------------------------------------------
    CASH FLOWS FROM OPERATING
     ACTIVITIES
    Net income for the period     43,401      21,910      57,928      33,420
    Net loss from discontinued
     operations                    1,132       1,070       2,219       1,266
    Add (deduct) items not
     affecting cash
      Depletion of timber
       holdings included in
       cost of sales              48,981      29,441      87,035      51,066
      Loss (gain) on changes
       in fair value of
       financial instruments      (1,194)       (642)      3,341        (328)
      Unrealized exchange
       losses                      1,794      (1,308)      4,292      (1,155)
      Stock-based compensation     1,043         474       2,176         929
      Depreciation and
       amortization                1,071       1,056       2,072       2,199
      Interest income from
       Mandra                       (300)          -        (600)          -
      Other                          892         361       1,421         808
    -------------------------------------------------------------------------
                                  96,820      52,362     159,884      88,205
    Net change in non-cash
     working capital balances      3,434     (33,665)    (27,608)    (23,208)
    -------------------------------------------------------------------------
    Cash flows from operating
     activities of continuing
     operations                  100,254      18,697     132,276      64,997
    -------------------------------------------------------------------------
    Cash flows from operating
     activities of discontinued
     operations                        -          71           -       4,109
    -------------------------------------------------------------------------
    CASH FLOWS USED IN INVESTING
     ACTIVITIES
    Additions to timber
     holdings                   (115,366)    (80,103)   (199,003)   (157,376)
    Increase in other assets        (688)          -     (23,099)          -
    Additions to capital assets   (8,464)     (1,859)    (18,500)     (2,890)
    Decrease (increase) in
     non-pledged short-term
     deposits                     (6,406)      3,113     (10,353)      1,352
    Business acquisition               -           -      (1,928)          -
    Proceeds from disposal of
     capital assets                    -           -           1           -
    -------------------------------------------------------------------------
    Cash flows used in
     investing activities       (130,924)    (78,849)   (252,882)   (158,914)
    -------------------------------------------------------------------------
    CASH FLOWS (USED IN) FROM
     FINANCING ACTIVITIES
    (Decrease) increase in
     bank indebtedness             3,965      (3,325)     (1,937)     (2,409)
    (Increase) decrease in
     pledged short-term
     deposits                       (781)      1,057      (2,719)      2,111
    Issuance of shares, net
     of issue costs                  289     384,779         289     384,779
    Payment on derivative
     financial instrument              -           -      (2,100)       (930)
    -------------------------------------------------------------------------
    Cash flows (used in) from
     financing activities          3,473     382,511      (6,467)    383,551
    -------------------------------------------------------------------------
    Effect of exchange rate
     changes on cash and cash
     equivalents                   1,088       2,465       2,496       2,596
    -------------------------------------------------------------------------
    Net (decrease) increase
     in cash and cash
     equivalents                 (26,109)    324,895    (124,577)    296,339
    Cash and cash equivalents,
     beginning of period         230,222     124,331     328,690     152,887
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period               204,113     449,226     204,113     449,226
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Supplemental cash flow
     information
    Cash payment for interest
     charged to income             3,884       4,744      20,342      21,402
    Interest received              1,422       3,406       4,017       4,981
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    





For further information:

For further information: Dave Horsely - Senior Vice President and Chief
Financial Officer, Tel: (905) 281-8889, Email: davehorsley@sinoforest.com;
Louisa Wong - Senior Manager, Investor Communications & Relations, Tel: +852
2514 2109, Email: louisa-wong@sinoforest.com

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