Sino-Forest Increases Net Income 49% and Diluted EPS 13% in Third Quarter 2007



    TORONTO, Nov. 12 /CNW/ - Sino-Forest Corporation ("Sino-Forest") (TSX:
TRE and TRE.S) announced today its third quarter 2007 financial results.
Dollar amounts in this news release are in U.S. currency unless otherwise
indicated.

    
    Financial Highlights

    (US$ millions,
     except margins
     and per share        Three months ended            Nine months ended
     amounts)               September 30(3)               September 30(3)
                      2007      2006    Change      2007      2006    Change
                         $         $         %         $         $         %
    -------------------------------------------------------------------------
    Revenue          161.5     150.8       7.1     403.0     322.2      25.1
    Gross Profit(1)   70.5      50.8      38.7     144.7      92.9      55.8
    Gross Profit
     Margin           43.7      33.7  10.0%pts      35.9      28.8   7.1%pts
    EBITDA(2)        130.5      87.9      48.4     239.5     168.9      41.8
    Net Income        67.0      45.1      48.6     104.9      68.9      52.2
    Diluted Earnings
     Per Share        0.37      0.32      12.7      0.64      0.49      29.7
    Cash Flow From
     Operating
     Activities      152.1      65.1     133.6     220.0     162.4      35.5

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

    Allen Chan, Chairman and CEO of Sino-Forest Corporation, said, "We are
very pleased to report strong financial performance in the third quarter this
year. While continuing operations sales grew 7%, the profitability of the
third quarter revenue increased significantly. Overall gross profit increased
39% to $71 million, EBITDA increased 48% to $131 million, and Net Income
increased 49% to $67 million over the same period in 2006. In additional, our
diluted EPS increased 13% in the third quarter and 30% year to date. This
increase was achieved despite the additional number of shares outstanding, and
the fact that the capital raised in the second quarter 2007 has yet to be
fully deployed."
    Chan continued, "We remain focused on creating shareholders' value at
both our upstream plantation operations and our downstream manufacturing
facilities, while practicing sustainable forestry management. In Hunan and
Yunnan, we continue to make progress on ramping up our integrated operation by
taking inventory of the trees, and investing in the infrastructure and
qualified people required to ensure the successful execution of our integrated
business model by maximizing the volume and value of our wood fibre in this
south-west region of China."
    Total revenue in the third quarter 2007 increased $11 million or 7% over
the same period in 2006. This sales increase drove much higher profitability
as standing timber sales increased $44 million upon which we earn a gross
margin of approximately 50%, offset by a decline of $38 million of imported
wood products upon which we earn a gross margin of approximately 3%. Total
revenue increased 25% year to date (nine months ended September 30, 2007).
    Gross profit in the third quarter of 2007 increased 39% to $71 million
from a year ago and 56% to $145 million year to date. Overall gross profit
margin rose 10 percentage-points to 44% in the third quarter from 34% the
prior year, mainly due to the higher proportion of sales of the more
profitable standing timber compared to the less profitable imported wood
products.
    Net income increased 49% to $67 million in the third quarter,
attributable to higher-margin standing timber sales and interest income, and
foreign exchange gains on the Canadian funds raised in the June 2007
financing. Net income for the nine months increased 52% from $69 million to
$105 million.

    
    Business Segment Highlights
    Wood Fibre Operations

                        Three months ended            Three months ended
                        September 30, 2007            September 30, 2006
                           Sales per     Total           Sales per     Total
                  Hectares   hectare   revenue  Hectares   hectare   revenue
                                   $     $'000                   $     $'000
    -------------------------------------------------------------------------
    Purchased
     plantations    34,714     3,936   136,628    21,122     4,357    92,037
    Heyuan Pine
     Undertaking       317     1,811       574       908     1,876     1,703
    Planted
     plantations     1,017     2,069     2,104     1,314       887     1,166
    -------------------------------------------------------------------------
    Total           36,048     3,864   139,306    23,344     4,066    94,906
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Sino-Forest sold 36,048 hectares of trees in the third quarter, or 54%
more than in the same period last year, so standing timber revenue increased
47% to $139 million. The overall average price obtained for the trees sold
declined 5% to $3,864 per hectare in the same period last year because of the
different composition, and yield in cubic metres per hectare, of trees sold
compared to last year when we sold some higher yield fir and pine. The average
price for the first nine months 2007 was up 44% to $4,046 per hectare.
Standing timber sales contributed 86% of overall revenue in the third quarter
this year, compared to 63% last year.
    No logs were sold in Hunan but harvesting activities have been taking
place during the third quarter. In Yunnan, we obtained land use rights by
entering into agreements to lease 10,438 hectares of secondary natural forest
land for 30 years for approximately $22 million. Eventually, species harvested
will then be re-generated to maintain bio-diversity, and will remain under
Sino-Forest's ownership.
    Revenue from sales of imported wood products declined $38 million or 74%
to $13 million in the third quarter of 2007 compared to the same quarter last
year, primarily due to an increase in export logs tax levied by the Russian
government from July 1, 2007. As a result, import volume was significantly
lower compared to second quarter of 2007 as the market adopts a more prudent
stance.
    Revenue from the sales of logs increased by $0.7 million in the third
quarter of 2007 to $1.1 million, compared to $0.4 million in the same period
in 2006. Wood chip sales and commission revenue have been reclassified as
discontinued operations within the consolidated financial statements in
accordance with Section 3425 of the CICA Handbook. There were no sale of logs
from Inner Mongolia during the third quarter as harvesting generally takes
place during the period November to April.

    Manufacturing and Other Operations

    Revenue from this business segment increased 71%, from $4.5 million last
year, to $7.7 million in the third quarter of 2007, mainly attributable to
higher sales of engineered-wood flooring products.
    Cash flow from operating activities increased 134% in the third quarter
of 2007, primarily due to the increases in cash provided by working capital
and in net income, and 36% year to date.
    Total capital expenditures in the third quarter of 2007 were $209 million
compared to $124 million in 2006 ($372 million versus $255 million year to
date). Sino-Forest acquired 32,696 hectares of standing timber during the
third quarter, 12% more than in Q3 2006. These trees acquired were mainly
broadleaf trees in Yunnan, fir and pine in Hunan, and eucalyptus and other
species in Guangxi province. Sino-Forest invested $3.4 million in re-planting
and maintenance of plantations, and $3.5 million in panel manufacturing
facilities in the third quarter 2007 ($13.2 million and $6.4 million,
respectively, year to date).

    Outlook

    Sino-Forest remains focused on maintaining and strengthening its
competitive advantages in China as the leading supplier of wood fibre derived
from sustainable forestry management practices. Encouraged by the overall
trend in rising demand and log prices, we will continue to improve the growing
yield and quality of wood fibre from the plantations we manage. As our trees
continue to grow, so will their value as we anticipate upward trend in pricing
to continue. Trees not harvested in the second half of 2007 will generate
higher profitability when they are harvested. We anticipate new revenue and
income contributions from Hunan in the fourth quarter of 2007, and from Yunnan
in the first half of 2008.
    At the same time, we will strive to minimize the impacts of operations on
the environment and maximize their economic benefits to the rural communities
that host our operations. We will also continue to invest in complementary,
downstream-product manufacturing, seedling nursery, urban greenery and retail
store operations to maximize the usage and market value of our wood fibre.

    Notice of Conference Call

    Sino-Forest will hold an investor conference call to further discuss its
third quarter results on November 12, 2007 at 8:30 am EST/9:30 pm HKT. To
participate, please dial +(1) 416-641-6123 for local and international callers
or 866-225-0198 for North America toll-free access. Alternatively, to join the
live webcast and replay in a listen-only mode, log on to Sino-Forest's website
under "Investor Relations - Earnings Releases" or go directly to
http://www.sinoforest.com/earningsreleases.asp.
    NOTE: The unaudited Interim Consolidated Financial Statements and Notes
and Management Discussion and Analysis for the period ended September 30, 2007
will be available on our website
http://www.sinoforest.com/earningsreleases.asp today after 7:15 am or filed on
SEDAR www.SEDAR.com.

    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
the first foreign and privately managed operator involved in forest products
in China. Its principal businesses include the ownership and management of
forestry plantation trees and sales of standing timber, logs and wood chips,
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.

    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 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: See Note 16 Discontinued
    Operations in the Interim Consolidated Financial Statements for the
    periods ended September 30, 2007 and 2006.

    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.


    
    SINO-FOREST CORPORATION

    CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
    (Expressed in thousands of U.S. dollars, except for earnings per share
     amounts) (Unaudited)

                                Three months ended         Nine months ended
                                      September 30              September 30
                                 2007       2006(3)      2007(3)      2006(3)
                                    $            $            $            $
    -------------------------------------------------------------------------
    Revenue                   161,475      150,818      403,016      322,219
    Costs and expenses
    Cost of sales              90,981      100,007      258,303      229,341
    Selling, general and
     administration             9,372        5,854       25,681       17,317
    Depreciation and
     amortization               1,255        1,131        3,454        2,872
    -------------------------------------------------------------------------
                              101,608      106,992      287,438      249,530
    -------------------------------------------------------------------------
    Income from operations
     before the undernoted     59,867       43,826      115,578       72,689
    Interest expense          (11,010)     (10,101)     (33,295)     (26,902)
    Interest income             6,140        2,042       11,225        4,638
    Exchange gains             15,192        3,686       16,651        6,946
    Amortization of deferred
     financing costs                -         (484)           -       (1,334)
    Other income                  387          333        1,003        1,007
    -------------------------------------------------------------------------
    Income before income
     taxes                     70,576       39,302      111,162       57,044
    Provision for income
     taxes                      4,797        2,556        9,986        5,662
    -------------------------------------------------------------------------
    Net income for the
     period from continuing
     operations                65,779       36,746      101,176       51,382
    -------------------------------------------------------------------------
    Net income for the
     period from discontinued
     operations                 1,245        8,358        3,700       17,546
    -------------------------------------------------------------------------
    Net income for the period  67,024       45,104      104,876       68,928
    -------------------------------------------------------------------------

    Earnings per share
    Basic                        0.37         0.33         0.65         0.50
    Diluted                      0.37         0.32         0.64         0.49
    -------------------------------------------------------------------------

    Earnings per share from
     continuing operations
    Basic                        0.36         0.27         0.63         0.37
    Diluted                      0.36         0.26         0.62         0.37
    -------------------------------------------------------------------------

    Retained earnings
    Retained earnings,
     beginning of period      462,399      335,818      423,450      311,994
    Cumulative impact of
     accounting changes
     relating to financial
     instruments                    -            -        1,097            -
    Net income for the
     period                    67,024       45,104      104,876       68,928
    -------------------------------------------------------------------------
    Retained earnings,
     end of period            529,423      380,922      529,423      380,922
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes



    CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
    (Expressed in thousands of U.S. dollars) (Unaudited)

                                Three months ended         Nine months ended
                                      September 30              September 30
                                 2007       2006(3)      2007(3)      2006(3)
                                    $            $            $            $
    -------------------------------------------------------------------------
    Net income for the period  67,024       45,104      104,876       68,928
    Other comprehensive income,
     net of tax:
      Change in fair value of
       derivatives designated
       as cash flow hedges     (1,427)           -       (1,099)           -
      Losses on derivatives
       designated as cash flow
       hedges transferred to
       net income in the
       current period             715            -        1,927            -
    -------------------------------------------------------------------------
      Changes in gains and
       losses on derivatives
       designated as cash flow
       hedges                    (712)           -          828            -
      Unrealized gains on
       foreign currency
       translation of self-
       sustaining operations   17,705        4,318       40,036        7,858
    -------------------------------------------------------------------------
    Other comprehensive income 16,993        4,318       40,864        7,858
    -------------------------------------------------------------------------
    Comprehensive income       84,017       49,422      145,740       76,786
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes



    SINO-FOREST CORPORATION

    CONSOLIDATED BALANCE SHEETS
    (Expressed in thousands of U.S. dollars) (Unaudited)

                                                          As at        As at
                                                   September 30  December 31
                                                           2007       2006(3)
                                                              $            $
    -------------------------------------------------------------------------

    ASSETS
    Current
    Cash and cash equivalents                           378,314      152,887
    Short-term deposits                                  18,861       18,550
    Accounts receivable                                  88,566      124,784
    Inventories                                          47,566       15,178
    Prepaids, deposits and other                         33,731       19,524
    Assets of discontinued operations                         -        2,686
    -------------------------------------------------------------------------
    Total current assets                                567,038      333,609
    -------------------------------------------------------------------------
    Timber holdings                                   1,026,698      752,783
    Capital assets, net                                  93,939       87,939
    Other assets                                         44,656       32,924
    -------------------------------------------------------------------------
    Total non-current assets                          1,165,293      873,646
    -------------------------------------------------------------------------
    Total assets                                      1,732,331    1,207,255
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND SHAREHOLDERS' EQUITY
    Current
    -------
    Bank indebtedness                                    40,383       70,958
    Accounts payable and accrued liabilities            106,487       69,303
    Income taxes payable                                  1,206        1,121
    Liabilities of discontinued operations                    -       10,214
    -------------------------------------------------------------------------
    Total current liabilities                           148,076      151,596
    -------------------------------------------------------------------------
    Long-term debts                                     441,529      450,000
    Derivative financial instrument                       9,314            -
    -------------------------------------------------------------------------
    Total non-current liabilities                       450,843      450,000
    -------------------------------------------------------------------------
    Total liabilities                                   598,919      601,596
    -------------------------------------------------------------------------
    Commitments and Contingencies
    Shareholders' equity
    Share capital                                       535,615      143,511
    Contributed surplus                                   3,324        4,726
    Retained earnings                                   529,423      423,450
    Accumulated other comprehensive income               65,050       33,972
    -------------------------------------------------------------------------
    Total shareholders' equity                        1,133,412      605,659
    -------------------------------------------------------------------------
    Total liabilities and shareholders' equity        1,732,331    1,207,255
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes



    SINO-FOREST CORPORATION

    CONSOLIDATED STATEMENTS OF CASH FLOWS
    (Expressed in thousands of U.S. dollars) (Unaudited)

                                Three months ended         Nine months ended
                                      September 30              September 30
                                 2007       2006(3)      2007(3)      2006(3)
                                    $            $            $            $
    -------------------------------------------------------------------------
    CASH FLOWS FROM
     OPERATING ACTIVITIES
    Net income for the period  67,024       45,104      104,876       68,928
    Net income from
     discontinued operations   (1,245)      (8,358)      (3,700)     (17,546)
    Add (deduct) items not
     affecting cash
      Depletion of timber
       holdings included in
       cost of sales           69,388       42,987      120,454       93,372
      Depreciation and
       amortization             1,255        1,131        3,454        2,872
      Stock-based compensation  1,003          356        1,932        1,148
      Amortization of deferred
       financing costs              -          484            -        1,334
      Exchange gains          (12,867)         (48)     (14,274)        (604)
      Other                    (1,902)          10         (218)         191
    -------------------------------------------------------------------------
                              122,656       81,666      212,524      149,695
    Net change in non-cash
     working capital balances  26,811      (24,936)       1,125       (6,645)
    -------------------------------------------------------------------------
    Cash flows from operating
     activities of continuing
     operations               149,467       56,730      213,649      143,050
    -------------------------------------------------------------------------
    Cash flows from operating
     activities of
     discontinued operations    2,608        8,363        6,386       19,375
    -------------------------------------------------------------------------
                              152,075       65,093      220,035      162,425
    -------------------------------------------------------------------------
    CASH FLOWS USED IN
     INVESTING ACTIVITIES
    Additions to timber
     holdings                (186,686)    (109,296)    (344,061)    (247,691)
    Additions to capital
     assets                    (3,474)        (914)      (6,365)      (7,903)
    (Increase) decrease in
     non-pledged short-term
     deposits                  (4,645)       2,472       (3,293)      21,948
    Increase in other assets  (18,645)           -      (18,645)     (10,000)
    -------------------------------------------------------------------------
    Cash flows used in
     investing activities    (213,450)    (107,738)    (372,364)    (243,646)
    -------------------------------------------------------------------------
    CASH FLOWS (USED IN)
     FROM FINANCING ACTIVITIES
    Issuance of shares, net
     of issue expenses          3,991            -      388,770          513
    Increase in long-term
     debts                          -            -            -      150,000
    (Decrease) increase in
     bank indebtedness        (29,087)       9,982      (31,496)      12,404
    Decrease (increase) in
     pledged short-term
     deposits                   1,606         (933)       3,717       (2,137)
    Increase in deferred
     financing costs                -            -            -       (3,001)
    -------------------------------------------------------------------------
    Cash flows (used in)
     from financing
     activities               (23,490)       9,049      360,991      157,779
    -------------------------------------------------------------------------
    Effect of exchange rate
     changes on cash and
     cash equivalents          13,953          310       16,765        1,009
    -------------------------------------------------------------------------
    Net (decrease) increase
     in cash and cash
     equivalents              (70,912)     (33,286)     225,427       77,567
    Cash and cash equivalents,
     beginning of period      449,226      219,271      152,887      108,418
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period            378,314      185,985      378,314      185,985
    -------------------------------------------------------------------------
    Supplemental cash flow
     information
    Cash payment for interest
     charged to income         16,595       16,126       37,997       31,203
    Interest received           4,374        1,997        9,355        4,191
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    





For further information:

For further information: DAVE HORSLEY - 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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