Sino-Forest Reports First Quarter 2009 Results



    TORONTO, May 11 /CNW/ - Sino-Forest Corporation ("Sino-Forest") (TSX:TRE)
announced its financial results today for the three months ended March 31,
2009. All amounts in this release are expressed in U.S. dollars unless
otherwise indicated.

    
    Financial Highlights
    -   Revenue increased 31% to $177 million
    -   EBITDA was up 54% to $115 million
    -   Net income rose 58% to $23 million
    -   Diluted EPS from continuing operations increased 61% to $0.15 per
        share


    (US$ millions,                               Three months ended March 31
     except margins and                           2009     2008(3)    Change
     per share amounts)                              $          $          %
    -------------------------------------------------------------------------
    Revenue                                      177.2      135.5       30.8
    Gross Profit(1)                               66.8       47.1       42.0
    Gross Profit Margin                          37.7%      34.7%     3%-pts
    EBITDA(2)                                    114.9       74.5       54.3
    Net Income                                    23.0       14.5       58.4
    Diluted EPS From Continuing Operations        0.15       0.09       60.9
    Diluted Earnings Per Share                    0.12       0.08       57.3
    Cash Flow From Operating Activities          167.6       34.0      392.9

    Notes (1), (2) and (3) are at the end of this release
    

    As China's economy continued to grow at an annualized rate of 6% in the
first quarter and forest product market conditions rebounded from the fourth
quarter of 2008 due to the positive effects of government economic stimulus
spending, the company recorded strong performance in all of its financial
metrics. The primary contributor to the 31% increase in revenue was 25% higher
sales from Sino-Forest's plantation fibre.
    Allen Chan, Chairman and CEO of Sino-Forest, said, "Although the first
quarter is typically our slowest of the year and economic growth is lower in
China, we are very pleased to report strong double-digit sales increases in
all of our business segments in the first quarter of 2009. With demand
bolstered by the effects of government spending on infrastructure and housing,
customers are gradually replenishing their inventories.
    Mr. Chan continued, "Given harvesting typically occurs in the second half
of the year, and given the softening in log prices we observed in late Q4 2008
and early Q1 2009, our efforts were primarily focused on sales of purchased
plantations. On the acquisition front, we were able to take advantage of the
uncertainty in the market and acquire fibre at lower prices than specified in
our Master Agreements."

    Business Segment Highlights

    
    Wood Fibre Operations

    Plantation Fibre

    -------------------------------------------------------------------------
                            First Quarter of 2009      First Quarter of 2008
                  -----------------------------------------------------------
                               Price                         Price
    Plantation                   per     Total                 per     Total
     Model        Hectares   hectare   revenue  Hectares   hectare   revenue
                                   $     $'000                   $     $'000
    -------------------------------------------------------------------------
    Purchased
     plantations    13,773     9,169   126,284     9,175     5,476    50,244
    Integrated
     plantations         -         -         -     4,254    12,306    52,349
    Planted
     plantations     1,705       988     1,684        64     1,203        77
    -------------------------------------------------------------------------
    Total           15,478     8,268   127,968    13,493     7,609   102,670
    -------------------------------------------------------------------------
    

    Revenue from sales of plantation fibre increased 24.6% to $128.0 million
in the first quarter of 2009, mainly due to an increased volume of fibre sold.
    The total volume of fibre sold during the first three months of the year
was approximately 2.1 million cubic metres ("m3") from purchased and planted
plantations. During the same period last year, we sold a total of
approximately 1.4 million m3, with about 863,000 m3 from purchased and planted
plantations and approximately 509,000 m3 from integrated plantations.
    The average yield of fibre sold under the purchased and planted
plantations in the first quarter of 2009 was 137 m3 per hectare, compared to
93 m3 per hectare in the same quarter last year. We obtained an average
selling price of $60 per m3 in Q1 of this year compared to $58 per m3 in Q1 of
2008 - representing an increase of 3.2% (including 4.9% appreciation of the
Renminbi versus US dollars).
    The average yield of harvested logs sold at integrated plantations in the
first quarter last year was 120 m3 per hectare, for which we obtained an
average selling price of $103 per m3.
    The total area of standing timber under Sino-Forest management increased
18% to approximately 410,000 hectares as at March 31, 2009.

    Other Fibre

    Revenue from sales of imported wood products increased 56.6%, from $24.1
million in Q1 of 2008 to $37.7 million in Q1 of 2009, primarily due to a
higher volume of imported logs sold.
    Revenue from the sales of wood logs decreased 37.4% when compared to the
same period in Q1 of 2008.

    Manufacturing and Other Operations

    Revenue from our manufacturing and other operations increased 33.2% from
$8.6 million in Q1 of 2008 to $11.5 million in Q1 of 2009, mainly as a result
of increased sales from greenery projects.

    Gross Profit and Margins

    Total gross profit increased 42.0% from $47.1 million in Q1 of 2008 to
$66.8 million in Q1 of 2009. Gross profit margin, being gross profit as a
percentage of revenue, increased from 34.7% in Q1 of 2008 to 37.7% in Q1 of
2009, mainly due to increased sales from plantation fibre operations, which
earn a higher gross margin than our other business segments.

    Wood Fibre Operations

    Gross profit margin from sales of purchased and planted plantations
decreased from 63.0% in Q1 of 2008 to 49.8% in Q1 of 2009, resulting from
relatively more sales of plantations with a higher fibre cost per m3 this
quarter compared to the same period last year.
    The gross profit margin for sales of logs at integrated plantation
operations was 27.7% or $28 per m3 in Q1 of 2008.
    Gross profit margin from sales of imported wood products increased from
2.8% in Q1 of 2008 to 3.9% in Q1 of 2009.
    Gross profit margin from sales of wood logs increased from 4.9% in Q1 of
2008 to 9.1% in Q1 of 2009 as a result of a change in mix of species of wood
logs sold as compared to 2008.

    Manufacturing and Other Operations

    Gross margin from our manufacturing and other operations increased from
2.2% in Q1 of 2008 to 13.8% in Q1 of 2009, primarily due to an improvement
from nursery segments.

    Selling, General and Administration Expenses

    Our selling, general and administration expenses increased 51.5%, from
$10.6 million in Q1 of 2008 to $16.1 million in Q1 of 2009, due primarily to
additional staff complement, increased incentive accrued compensation and
increased in research and development expenses.

    Net Income

    As a result of the foregoing, net income for the period increased 58.4%,
from $14.5 million in Q1 of 2008 to $23.0 million in Q1 of 2009. Overall net
income for the period as a percentage of revenue increased from 10.7% in Q1 of
2008 to 13.0% in Q1 of 2009.

    Cash Flows from Operating Activities of Continuing Operations

    Net cash provided from operating activities increased from $34.0 million
in Q1 of Q1 2008 to $167.6 million in Q1 of 2009. The increase was due to
higher cash provided by operations and cash provided by working capital, which
resulted from the decrease in accounts receivables in wood fibre operations.

    
    Capital Expenditures

                                ---------------------------------------------
                                 First Quarter of 2009 First Quarter of 2008
                                   Hectares  $ million   Hectares  $ million
    -------------------------------------------------------------------------
    Tree acquisition - Purchased
     plantations                     75,977      245.6     27,706       77.9
    Re-planting and maintenance
     of plantations                                5.8                   4.4
    Manufacturing and Other
     Operations                                    5.2                  10.0
    -------------------------------------------------------------------------
    Total                                        256.6                  92.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    For fiscal 2009, capital expenditures are expected to be around $700
million for plantation acquisitions, replanting and maintenance, and
approximately $30 million for the development of manufacturing facilities
integrated with plantation operations. These acquisition levels will be
adjusted as necessary given future changes in the economic climate in the PRC.

    Mandra Update

    Sino-Forest has entered into preliminary discussions with Mandra Forestry
Finance Limited ("Mandra") and certain holders of Mandra's 12% guaranteed
senior notes regarding the possible acquisition by Sino-Forest of their notes
and/or additional equity of Mandra. These discussions are at a very
preliminary stage and there are no assurances that an acquisition will
materialize.
    As previously disclosed, Sino-Forest formed an alliance with Mandra in
2005. Sino-Forest currently has, pursuant to and subject to certain conditions
set forth in the terms of a shareholders agreement with Mandra, an option to
purchase all of the outstanding equity securities of Mandra from the other
shareholders of Mandra and shares represented by warrants held by certain
warrant holders. This option is exercisable up to May 10, 2010. Upon the
expiration of such option, Sino-Forest will have other preemptive rights with
respect to proposed transfers of outstanding equity securities of Mandra
effective from May 11, 2010 to May 10, 2012.

    Outlook

    The positive effects of China's stimulus plan and the rebuilding of the
Sichuan area should help to sustain economic growth while benefiting numerous
industries. We are optimistic about the associated positive ramifications for
the forestry sector and the demand for wood fibre. Although fibre prices
softened in late Q4 2008/early Q1 2009, we have seen signs of a rebound as
prices have moved up recently. However, we do not anticipate prices will reach
the overall levels realised in 2008 until the latter part of 2009/early 2010.
    The positive aspect to softer fibre prices is that we see some
acquisition opportunities at lower prices which we hope to take advantage of
before markets rebound to 2008 levels. Even as one of the industry leaders in
commercial forest plantations, Sino-Forest only has a 5% market share in
China. Therefore, we will pursue certain attractive growth opportunities to
strengthen our position in key markets. We will remain vigilant and prudent in
assessing such opportunities, as we are committed to developing a critical
mass of fibre that is sustainable and profitable in the long term.

    Notice of Conference Call

    Sino-Forest will hold a conference call for analysts and investors to
further discuss its first quarter results on May 11, 2009 at 8:30 am EST /
8:30 pm HKT. To participate, please dial +1-416-644-3425 for local and
international callers, or 800-595-8550 for North America toll-free access.
Alternatively, to listen to the live webcast and replay in a listen-only mode,
go to Sino-Forest's website under "Investor Relations - Earnings Releases" or
click on the following link: http://www.sinoforest.com/earningsreleases.asp.

    About Sino-Forest Corporation

    Sino-Forest Corporation is a leading commercial forest plantation
operator in China. Its principal businesses include the ownership and
management of forest plantation trees, the sales of standing timber and wood
logs and the complementary manufacturing of downstream engineered-wood
products. The company'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 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 particleboard operations as discontinued
operations as disclosed in Note 7 Discontinued Operations.

    Cautionary note: 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 United States dollars,
                 except for earnings per share information)
                                 (Unaudited)

                                                             2009       2008
    Three months ended March 31,                                $          $
    -------------------------------------------------------------------------
    Revenue                                               177,234    135,495

    Costs and expenses
    Cost of sales                                         110,398     88,421
    Selling, general and administration                    16,115     10,636
    Depreciation and amortization                           1,129        672
    -------------------------------------------------------------------------
                                                          127,642     99,729
    -------------------------------------------------------------------------
    Income from operations before the undernoted           49,592     35,766
    Interest expense                                      (16,795)   (10,475)
    Interest income                                         1,904      2,881
    Exchange losses                                           (93)    (2,513)
    Loss on changes in fair value of financial
     instruments, net                                        (981)    (4,535)
    Other income                                              221        393
    -------------------------------------------------------------------------
    Income before income taxes                             33,848     21,517
    Provision for income taxes                             (5,926)    (4,274)
    -------------------------------------------------------------------------
    Net income from continuing operations                  27,922     17,243
    Net loss from discontinued operations                  (4,917)    (2,716)
    -------------------------------------------------------------------------
    Net income for the period                              23,005     14,527
    -------------------------------------------------------------------------

    Earnings per share
    Basic                                                    0.12       0.08
    Diluted                                                  0.12       0.08
    -------------------------------------------------------------------------

    Earnings per share from continuing operations
    Basic                                                    0.15       0.09
    Diluted                                                  0.15       0.09
    -------------------------------------------------------------------------

    Loss per share from discontinued operations
    Basic                                                   (0.03)     (0.01)
    Diluted                                                 (0.03)     (0.01)
    -------------------------------------------------------------------------

    Retained earnings
    Retained earnings, beginning of period                769,557    540,964
    Net income for the period                              23,005     14,527
    -------------------------------------------------------------------------
    Retained earnings, end of period                      792,562    555,491
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



               CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
        (Expressed in thousands of United States dollars) (Unaudited)

                                                             2009       2008
    Three months ended March 31,                                $          $
    -------------------------------------------------------------------------
    Net income for the period                              23,005     14,527
    Other comprehensive (loss) income, net of tax:
      Unrealized losses on financial assets designated
       as available-for-sale, net of tax of nil            (1,210)      (949)
      Unrealized (losses) gains on foreign currency
       translation of self-sustaining operations             (736)    62,746
    -------------------------------------------------------------------------
    Other comprehensive (losses) income                    (1,946)    61,797
    -------------------------------------------------------------------------
    Comprehensive income                                   21,059     76,324
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



                         CONSOLIDATED BALANCE SHEETS
        (Expressed in thousands of United States dollars) (Unaudited)

                                                            As at      As at
                                                            March   December
                                                         31, 2009   31, 2008
                                                                $          $
    -------------------------------------------------------------------------
    ASSETS
    Current
    Cash and cash equivalents                             367,002    441,171
    Short-term deposits                                    46,414     45,784
    Accounts receivable                                   131,065    225,753
    Inventories                                            45,858     43,200
    Prepaid expenses and other                             27,385     21,768
    Convertible bonds                                      25,044      2,659
    Assets of discontinued operations                      27,950     31,122
    -------------------------------------------------------------------------
    Total current assets                                  670,718    811,457
    -------------------------------------------------------------------------
    Timber holdings                                     1,839,829  1,653,306
    Capital assets, net                                    67,490     63,704
    Other assets                                           78,146     75,457
    -------------------------------------------------------------------------
                                                        2,656,183  2,603,924
    -------------------------------------------------------------------------

    LIABILITIES AND SHAREHOLDERS' EQUITY
    Current
    Bank indebtedness                                      75,493     67,188
    Current portion of long-term debt                      12,500          -
    Accounts payable and accrued liabilities              180,430    179,903
    Income taxes payable                                    6,626      6,383
    Derivative financial instrument                         2,916      5,214
    Liabilities of discontinued operations                 30,030     32,004
    -------------------------------------------------------------------------
    Total current liabilities                             307,995    290,692
    -------------------------------------------------------------------------
    Long-term debt                                        705,573    714,468
    -------------------------------------------------------------------------
    Total liabilities                                   1,013,568  1,005,160
    -------------------------------------------------------------------------
    Commitments and Contingencies

    Shareholders' equity
    Equity portion of convertible senior notes             70,462     70,462
    Share capital                                         561,021    539,315
    Contributed surplus                                     8,685      7,599
    Accumulated other comprehensive income                209,885    211,831
    Retained earnings                                     792,562    769,557
    -------------------------------------------------------------------------
    Total shareholders' equity                          1,642,615  1,598,764
    -------------------------------------------------------------------------
                                                        2,656,183  2,603,924
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



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

                                                             2009       2008
    Three months ended March 31,                                $          $
    -------------------------------------------------------------------------
    CASH FLOWS FROM OPERATING ACTIVITIES
    Net income for the period                              23,005     14,527
    Net loss from discontinued operations                   4,917      2,716
    Add (deduct) items not affecting cash
      Depletion of timber holdings included in cost
       of sales                                            64,205     38,054
      Depreciation and amortization                         1,129        672
      Accretion of convertible senior notes                 2,859          -
      Stock-based compensation                              1,086      1,133
      Loss on changes in fair value of financial
       instruments, net                                       981      4,535
      Interest income from Mandra                            (300)      (300)
      Other                                                 1,294        529
      Exchange gains (losses)                                 (19)     2,497
    -------------------------------------------------------------------------
                                                           99,157     64,363
    Net change in non-cash working capital balances        68,428    (30,366)
    -------------------------------------------------------------------------
    Cash flows from operating activities of continuing
     operations                                           167,585     33,997
    -------------------------------------------------------------------------
    Cash flows used in operating activities of
     discontinued operations                               (2,789)    (1,905)
    -------------------------------------------------------------------------
    CASH FLOWS USED IN INVESTING ACTIVITIES
    Additions to timber holdings                         (233,861)   (83,637)
    Increase in other assets                               (5,257)   (22,411)
    Additions to capital assets                            (3,263)   (10,044)
    Increase in non-pledged short-term deposits              (864)    (3,947)
    Business acquisition                                        -     (1,928)
    Acquisition of convertible bonds                         (200)         -
    Proceeds from disposal of capital assets                    -          1
    -------------------------------------------------------------------------
    Cash flows used in investing activities              (243,445)  (121,966)
    -------------------------------------------------------------------------
    Cash flows used in investing activities of
     discontinued operations                                 (929)         -
    -------------------------------------------------------------------------
    CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
    Increase in long-term debt                                  -        855
    Increase (decrease) in bank indebtedness                8,311     (6,471)
    Decrease (increase) in pledged short-term deposits        228     (1,938)
    Payment on derivative financial instrument             (2,891)    (2,100)
    -------------------------------------------------------------------------
    Cash flows from (used in) financing activities          5,648     (9,654)
    -------------------------------------------------------------------------
    Cash flows used in financing activities of
     discontinued operations                                   (1)      (348)
    -------------------------------------------------------------------------
    Effect of exchange rate changes on cash and cash
     equivalents                                             (238)     1,408
    -------------------------------------------------------------------------
    Net decrease in cash and cash equivalents             (74,169)   (98,468)
    Cash and cash equivalents, beginning of period        441,171    328,690
    -------------------------------------------------------------------------
    Cash and cash equivalents, end of period              367,002    230,222
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Supplemental cash flow information
    Cash payment for interest charged to income            24,569     16,458
    Interest received                                         681      2,595
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    





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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