Sino-Forest Net Income Reached US$111 million in 2006



    
    -   Revenues increased 47% in fourth quarter and 31% year to date ("YTD")
    -   Net income rose 54% in Q4 and 36% YTD
    -   Diluted EPS was up 53% to $0.30 in Q4, 34% to $0.80 YTD
    

    TORONTO, March 19 /CNW/ - Sino-Forest Corporation ("Sino-Forest")
(TSX:TRE and TRE.S) announced today its financial results for the fourth
quarter and year-ended December 31, 2006. All dollar amounts in this release
are expressed in U.S. dollars unless otherwise indicated.

    
    Financial Highlights

    (US$
     millions,
     except
     margins
     and per        Three months ended               Twelve months ended
     share           December 31, 2006                December 31, 2006
     amounts)    2006       2005     Change       2006       2005     Change
    -------------------------------------------------------------------------
    Revenue    $250.3     $170.4        47%     $645.0     $493.3        31%
    Gross
     Profit(1)  $84.9      $44.8        90%     $194.5     $136.9        42%
    Gross
     Profit
     Margin     33.9%      26.3%   7.6% pts      30.2%      27.7%   2.5% pts
    EBITDA(2)  $148.7      $96.1        55%     $334.3     $255.9        31%
    Net Income  $42.5      $27.5        54%     $111.5      $81.7        36%
    Diluted
     Earnings
     Per Share  $0.30      $0.20        53%      $0.80      $0.59        34%
    Cash Flow
     From
     Operating
     Activi-
     ties      $126.9      $58.8       116%     $289.3     $196.5        47%

    Note: (1) and (2) are at the end of this release
    

    Revenue growth was strong in both the fourth quarter and full year 2006
primarily due to increased sales of standing timber and imported wood
products, partly offset by a decrease in the sales of wood chips and logs. Our
2006 diluted earnings per share for the fourth quarter reached $0.30 and for
the year end $0.80 per share.
    "2006 was both a challenging and exciting year for us as we seized
opportunities to enter new markets by acquiring access to significant volumes
of fibre, and as we continued to refine our strategy to adapt to changing
market conditions," said Allen Chan, Sino-Forest's Chairman and CEO. "With our
experience and business relations in China's vast, evolving market, we managed
to deliver record earnings to shareholders for the twelfth consecutive year."

    Wood Fibre Operations

    Our wood fibre operations generated 96% of total revenues in 2006, as the
annual fibre output reached approximately 10 million cubic metres (m3), an
increase of 25% from the previous year's total of approximately 8 million
m(3).

    Standing Timber

    Standing timber continued to be the most significant segment of our
business in 2006, with revenue increasing 46% to $352.6 million (selling
111,367 hectares of standing timber), compared to $240.8 million (selling
108,013 hectares) in the previous year. In the fourth quarter 2006, revenue
increased 75% to $167.9 million (selling 45,576 hectares), compared to $95.8
million (selling 41,544 hectares) in 2005. The average selling price per
hectare increased 42% as we sold 81% more high-yielding trees from purchased
tree plantations. Our standing timber gross profit margin increased 10
percentage-points in Q4 2006 and 6 percentage-points for the year.

    
    -------------------------------------------------------------------------
               Year ended December, 31 2006     Year ended December 31, 2005
             ----------------------------------------------------------------
                       Sales per      Total             Sales per      Total
             Hectares    hectare    revenue   Hectares    hectare    revenue
    -------------------------------------------------------------------------
                               $      $'000                     $      $'000
    -------------------------------------------------------------------------
    Purchased
     plant-
     ations    73,665      3,959    291,650     40,718      3,302    134,458
    -------------------------------------------------------------------------
    Heyuan
     Pine
     Under-
     taking    32,426      1,692     54,864     64,189      1,602    102,833
    -------------------------------------------------------------------------
    Planted
     plant-
     ations     5,276      1,149      6,060      3,106      1,139      3,538
    -------------------------------------------------------------------------
    Total     111,367      3,166    352,574    108,013      2,230    240,829
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    The total area of standing timber under Sino-Forest management increased
9% to 352,000 hectares as at December 31, 2006, compared to 324,000 hectares
the previous year. Total plantation tree area acquired in 2006 decreased 26%
to 129,276 hectares, yet the capital expenditure was up 43% to $383.2 million.
The increase in cost was mainly due to the higher yielding trees acquired,
with a yield of 90 to 120 m(3) per hectare from both Hunan and other purchased
tree plantations, compared to 45 m(3) per hectare mainly from the Heyuan Pine
Undertaking acquired in 2005.
    According to the recent forest asset valuation conducted by independent
forestry consultants, Poyry, Sino-Forest's merchantable standing timber
increased 15% to approximately 27.5 million m(3), excluding trees less than 4
years of age. The valuation of our forest assets as at December 31, 2006,
based on a single rotation, was $919.0 million, and on a perpetual rotation,
was $1,427.6 million (using a pre-tax discount rate of 11.5%), representing
increases of 26% and 47%, respectively, from the 2005 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 before March 31, 2007.

    Wood Chips and Logs

    Revenue from sales of wood chips and logs in the fourth quarter declined
56% to $17.1 million, mainly due to a 54% decrease in shipments to 151,490
bone dry metric tonnes ("BDMT"). In 2006, the total revenue under this segment
decreased 42% to $90.0 million as the volume of wood chips dropped 43%; this
was offset by a 4% increase in the average selling price per BDMT of $109.9 in
2006. Sales volume declined during the year for two reasons. First, in Q4
2005, one of the two authorized intermediaries who processed wood chip for
Sino-Forest was acquired and ceased to provide wood chipping services to us.
Second, in Q4 2006, the volume of wood chips processed by the remaining
authorized intermediary decreased as its wood chipping capacity was not
available to us. Management is of the view that the wood chip revenue will
continue to decline over the next few quarters if we are not able to access
the wood chipping capacity. We still retain the ability to acquire the same
volume of fibre that was previously processed into wood chips and we plan to
utilize the fibre in our own manufacturing facilities in the future to
maximize the profitability of our downstream operations.

    
    -------------------------------------------------------------------------
               Year ended December, 31 2006     Year ended December, 31 2005
             ----------------------------------------------------------------
                         Average                          Average
                         selling                          selling
                 BDMT      price    Revenue       BDMT      price    Revenue
    -------------------------------------------------------------------------
                               $      $'000                     $      $'000
    -------------------------------------------------------------------------
    Wood
     chips    763,440      109.9     83,894  1,348,840      105.5    142,301
    -------------------------------------------------------------------------
    Wood logs                           495                            3,829
    -------------------------------------------------------------------------
    Commiss-
     ion      368,640       15.2      5,605    657,830       14.8      9,740
    -------------------------------------------------------------------------
    Total                            89,994                          155,870
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Imported Wood Products

    Revenues from imported wood products increased 96% to $55.5 million in
the fourth quarter and 112% to $178.4 million in the year ended 2006. These
increases were primarily attributable to higher demand for large-diameter
logs, which Sino-Forest imports from countries such as Russia, Papua New
Guinea and neighbouring countries. The Russian government announced early this
year that it will significantly increase the export tax on logs from the
current level of 6.5% to 20% in July 2007, 25% in April 2008 and 80% in
January 2009. As tax levied will be passed on to our customers, we do expect
logs imported from Russia will drop significantly in the second half of 2007.
We intend to expand our sourcing network globally.

    Manufacturing and Other Operations

    An increase in revenue from this segment of 93% to $24.0 million in 2006
was attributable to sales of engineered-wood flooring from our new facility
that commenced operation in the second half of 2006. The second-phase
expansion of the facility is scheduled to be built in 2007, subject to
production utilization and profitability of the first phase.
    Expansion of the particleboard facility in Gaoyao continued to be behind
schedule as delivery of parts of the third line were delayed and other parts
were sent back for further customization. We expect the particleboard line to
be fully operational in 2007.
    In addition, we acquired processing facilities, primarily producing
finger-joint boards, with a total annual capacity of 68,000 m(3) for $1.3
million in Hunan Province. Our strategy in Hunan is to maximize the value of
our wood fibre through value-added processing.

    Selling, General and Administration Expenses

    These expenses increased 79% to $37.9 million in 2006, due primarily to
increased compensation costs as a result of a $5.4 million termination payment
made to an officer in December 2006 pursuant to his employment contract and
additional staff compliment.

    Capital Expenditures

    Sino-Forest continued to dedicate most of its capital expenditures in
2006 to the acquisition of plantation trees to ensure an annual sustainable
harvestable cut. Total expenditures of $416.8 million increased 39% from 2005;
spending on trees rose 43% to $383.2 million, and spending on re-planting and
maintenance increased 55% last year to $24.0 million.
    Capital expenditures in 2007 are expected to exceed $300.0 million for
plantations acquisition and replanting and maintenance, and approximately
$30.0 million for the development of our manufacturing operations.

    
    -------------------------------------------------------------------------
                                    Three months ended   Twelve months ended
                                     December 31, 2006     December 31, 2006
                                  -------------------------------------------
                                   Hectares $'millions   Hectares $'millions
    -------------------------------------------------------------------------

    Tree acquisition - Purchased
     plantations                     40,485      155.6    113,411      365.5
    -------------------------------------------------------------------------
    Tree acquisition - Heyuan Pine
     Undertaking                          -          -     15,865       17.7
    -------------------------------------------------------------------------
    Re-planting and maintenance of
     plantations                                   4.9                  24.0
    -------------------------------------------------------------------------
    Panel manufacturing and other
     operations                                    1.8                   9.6
    -------------------------------------------------------------------------
    Total                                        162.3                 416.8
    -------------------------------------------------------------------------
    

    Outlook

    We are confident that the amount of wood fibre we locked in last year
with long-term agreements in Inner Mongolia and Hunan Province will provide
Sino-Forest and its business partners with continued growth in sales and the
creation of added value through our downstream operations. We foresee selling
prices of our standing timber and engineered wood products rising with strong
demand.
    In the first quarter of 2007, the Russian government announced its plan
to increase the export tax on logs in three phases from the current level of
6.5% to 80% by 2009, effective from July 2007 onwards to encourage development
of domestic processing of logs. Since China imports most of the logs from
Russia, we believe the increased tax will push prices up for domestically
grown plantation logs as customers will source alternate wood fibre within
China or from other countries. We therefore intend to expand our sourcing
network globally for our imported wood-based products. And as our oriented
strand board facility in Heilongjiang is located close to the Russian border,
we are considering the prospect of installing a processing facility right
across the border to benefit from an abundant supply of lower-cost fibre.
    In summary, the long-term prospects for Sino-Forest are exciting as
demand for wood fibre in China continues to exceed supply, leading to
escalating wood-product prices. We will continue to draw upon our expertise
and business relations to expand our inventory of plantation trees
geographically, increase the yield from our plantations under management, and
deliver greater value to our stakeholders.

    Notice of Conference Call
    -------------------------

    Sino-Forest will hold an investor conference call to further discuss its
fourth quarter and year-end financial results on Monday, March 19, 2007 at
8:30 am EST / 8:30 pm HKT. To join the call, dial (416) 644-3416.
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, a Canadian company, is a leading commercial
forestry plantations operator in China. The company started its operations in
1994 and is 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, wood
chips and logs, and complementary manufacturing of downstream engineered-wood
products.
    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.
    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 BALANCE SHEETS
              (Expressed in thousands of United States dollars)

    As at December 31,
                                                             2006       2005
                                                                $          $
    -------------------------------------------------------------------------
    ASSETS
    Current
    Cash and cash equivalents                             152,887    108,418
    Short-term deposits                                    18,550     30,268
    Accounts receivable                                   125,307    119,989
    Due from PRC CJV partners                               2,771      3,842
    Inventories                                            15,178      7,622
    Prepaid expenses and other                             18,916      7,201
    -------------------------------------------------------------------------
    Total current assets                                  333,609    277,340
    -------------------------------------------------------------------------
    Timber holdings                                       752,783    513,412
    Capital assets, net                                    87,939     81,077
    Other assets                                           32,924     23,442
    -------------------------------------------------------------------------
                                                        1,207,255    895,271
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND SHAREHOLDERS' EQUITY
    Current
    Bank indebtedness                                      70,958     41,312
    Accounts payable and accrued liabilities               79,517     85,212
    Income taxes payable                                    1,121        738
    -------------------------------------------------------------------------
    Total current liabilities                             151,596    127,262
    -------------------------------------------------------------------------
    Long-term debts                                       450,000    300,000
    -------------------------------------------------------------------------
    Total liabilities                                     601,596    427,262
    -------------------------------------------------------------------------
    Commitments and Contingencies

    Shareholders' equity
    Share capital                                         143,511    142,815
    Contributed surplus                                     4,726      1,804
    Cumulative translation adjustment                      33,972     11,396
    Retained earnings                                     423,450    311,994
    -------------------------------------------------------------------------
    Total shareholders' equity                            605,659    468,009
    -------------------------------------------------------------------------
                                                        1,207,255    895,271
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    On behalf of the Board:


    Allen T.Y. Chan          James M.E. Hyde
    Director                 Director



                    CONSOLIDATED STATEMENTS OF INCOME AND
                              RETAINED EARNINGS
              (Expressed in thousands of United States dollars,
                 except for earnings per share information)

    Years ended December 31,
                                                             2006       2005
                                                                $          $
    -------------------------------------------------------------------------
    Revenue                                               644,979    493,301

    Costs and expenses
    Cost of sales                                         450,481    356,430
    Selling, general and administration                    37,908     21,165
    Depreciation and amortization                           3,975      3,099
    -------------------------------------------------------------------------
                                                          492,364    380,694
    -------------------------------------------------------------------------
    Income from operations before the undernoted          152,615    112,607
    Interest expense                                      (37,340)   (28,994)
    Interest income                                         6,486      4,179
    Other exchange gains                                    3,676      1,253
    Amortization of deferred financing costs               (1,819)    (1,338)
    Other income                                            1,312      1,236
    -------------------------------------------------------------------------
    Income before income taxes                            124,930     88,943
    Provision for income taxes                            (13,474)    (7,256)
    -------------------------------------------------------------------------
    Net income for the year                               111,456     81,687
    Retained earnings, beginning of year                  311,994    230,307
    -------------------------------------------------------------------------
    Retained earnings, end of year                        423,450    311,994
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings per share
    Basic                                                    0.81       0.59
    Diluted                                                  0.80       0.59
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



                    CONSOLIDATED STATEMENTS OF CASH FLOWS
              (Expressed in thousands of United States dollars)

    Years ended December 31,
                                                             2006       2005
                                                                $          $
    -------------------------------------------------------------------------

    CASH FLOWS FROM OPERATING ACTIVITIES
    Net income for the year                               111,456     81,687
    Add (deduct) items not affecting cash
      Depletion of timber holdings included in cost of
       sales                                              177,730    140,204
      Depreciation and amortization                         3,975      3,099
      Stock-based compensation                              3,105      2,672
      Amortization of deferred financing costs              1,819      1,338
      Write-off of capital assets                             877          -
      Interest income from Mandra                            (300)      (767)
      Other                                                  (150)      (153)
      -----------------------------------------------------------------------
                                                          298,512    228,080
    Net change in non-cash working capital balances        (9,224)   (31,625)
    -------------------------------------------------------------------------
    Cash flows from operating activities                  289,288    196,455
    -------------------------------------------------------------------------

    CASH FLOWS USED IN INVESTING ACTIVITIES
    Additions to timber holdings                         (415,087)  (265,158)
    Increase in other assets                              (10,000)   (14,501)
    Additions to capital assets                            (9,649)   (16,584)
    Decrease (increase) in non-pledged short-term
     deposits                                              11,912     (5,155)
    -------------------------------------------------------------------------
    Cash flows used in investing activities              (422,824)  (301,398)
    -------------------------------------------------------------------------

    CASH FLOWS FROM FINANCING ACTIVITIES
    Increase in long-term debt                            150,000          -
    Increase in bank indebtedness                          29,175     12,532
    Issuance of shares, net of issue costs                    513          -
    Decrease (increase) in pledged short-term deposits        385     (1,024)
    Increase in deferred financing costs                   (3,001)         -
    -------------------------------------------------------------------------
    Cash flows from financing activities                  177,072     11,508
    -------------------------------------------------------------------------
    Effect of exchange rate changes on cash and cash
     equivalents                                              933        687
    -------------------------------------------------------------------------
    Net increase (decrease) in cash and cash equivalents   44,469    (92,748)
    Cash and cash equivalents, beginning of year          108,418    201,166
    -------------------------------------------------------------------------
    Cash and cash equivalents, end of year                152,887    108,418
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Supplemental cash flow information
    Cash payment for interest charged to income            35,642     28,994
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    




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, Manager, Investor Communications & Relations, Tel: +852 2514
2109, Email: louisa-wong@sinoforest.com

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