Sino-Forest Reports Second Quarter 2009 Results



    TORONTO, Aug. 10 /CNW/ - Sino-Forest Corporation ("Sino-Forest")
(TSX:TRE) today announced its financial results for the second quarter and the
first half ("year-to-date") of 2009. All amounts in this release are expressed
in U.S. dollars unless otherwise indicated.

    
    Second Quarter Financial Highlights

    -  Revenue for the quarter increased 21%, and 25% in the first half of
       2009 to $400 million
    -  Net Income for the quarter rose 4%, and 18% over the first half of
       the year
    -  Diluted Earnings Per Share remained relatively flat at 23 cents and
       rose 14% YTD
    -  Cash Flow From Operating Activities increased 54%, and 139% YTD
    -  Sino-Forest raised gross proceeds of Cdn.$380 million through public
       offering

    (US$ millions,
     except margins            Second Quarter               First Half
     and per share         2009     2008   Change     2009     2008   Change
     amounts)                 $        $        %        $        $        %
    -------------------------------------------------------------------------
    Revenue               224.4    185.0     21.3    401.7    320.5     25.3

    Gross Profit(1)        82.4     68.3     20.6    149.3    115.4     29.4

    Gross Profit Margin    36.7     36.9 (0.2%pts)    37.2     36.0  1.2%pts

    EBITDA(2)             145.4    107.7     35.0    260.3    182.2     42.9

    Net Income             45.0     43.4      3.8     68.1     57.9     17.5

    Diluted Earnings
     Per Share             0.23     0.24     (2.2)    0.36     0.31     13.6

    Cash Flow From
     Operating Activities 156.8    101.6     54.3    324.3    135.6    139.3

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

    The second quarter of 2009 was a busy period for the company on both a
corporate and operational level, as the company raised gross proceeds of
approximately Cdn.$380 million by issuing 34.5 million common shares through a
public offering and international private placement, and launched an offer to
exchange US$300 million 9.125% guaranteed senior notes due 2011 (the "2004
Senior Notes") for 10.25% new guaranteed senior notes due 2014. On July 27,
2009, we successfully exchanged approximately $212 million of the outstanding
2004 Senior Notes for 10.25% new guaranteed senior notes due 2014, and amended
certain covenants in the indenture governing the 2004 Senior Notes. In
addition, we signed our fifth long-term master agreement to acquire between 15
and 18 million cubic metres (m3) of wood fibre located in Jiangxi Province.
    Allen Chan, Chairman and CEO of Sino-Forest Corporation, said, "We are
pleased to report record strong growth in revenue as we have witnessed an
increase in fibre demand, which was attributable to China's economic stimulus
spending and rebuilding work in Sichuan province post-earthquake, while fibre
prices remained steady during the quarter. We anticipate log prices will
return to 2008 levels by the end of this year."

    
    Business Segment Highlights

    Revenue

    Total revenue increased 21.3% to $224.4 million in the second quarter of
2009 mainly due to increased sales of purchased plantation fibre.

    Wood Fibre Operations

                      Second Quarter of 2009       Second Quarter of 2008
    Plantation               Sales per    Total           Sales per    Total
     Model          Hectares   hectare  revenue  Hectares   hectare  revenue
                                     $    $'000                   $    $'000
    -------------------------------------------------------------------------
    Purchased
     plantations      16,970     9,225  156,556    14,128     5,927   83,732
    Integrated
     plantations           -         -        -     3,209    12,811   41,112
    Planted
     plantations       1,568     1,494    2,342       328     2,277      747
    -------------------------------------------------------------------------
    Total             18,538     8,571  158,898    17,665     7,110  125,591
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Revenue from sales of plantation fibre increased 26.5% to $158.9 million
in the second quarter of 2009, mainly due to an increased volume of fibre
sold.
    The total volume of fibre sold increased 47.4% during Q2 2009 to
approximately 2.6 million m3 from purchased and planted plantations. During
the same period last year, we sold approximately 1.8 million m3, of which
approximately 1.4 million m3 was from purchased and planted plantations and
approximately 0.4 million m3 was from integrated plantations.
    The average yield of fibre sold under the purchased and planted
plantations in the second quarter of 2009 was 141 m3 per hectare compared to
96 m3 per hectare in the same period last year. In both quarters, we obtained
an average selling price of approximately $61 per m3. The average yield of
harvested logs sold at integrated plantations in Q2 2008 was 120 m3 per
hectare and it commanded an average selling price of $107 per m3.
    Plantation fibre sales comprised 70.8% of total revenue in the second
quarter of 2009, compared to 67.9% in the same period last year.

    Other Fibre
    Revenue from sales of other fibre increased 29.0%, from $44.0 million in
second quarter of 2008 to $56.8 million in the same period in 2009. This
increase was primarily due to higher volume of imported logs sold.
    Other fibre sales comprised 25.3% of total revenue in the second quarter
of 2009, compared to 23.8% of total revenue in the same period in 2008.

    Manufacturing and Other Operations
    Revenue from our manufacturing and other operations decreased 43.1% to
$8.8 million in Q2 2009. In the second quarter of 2008, we processed
approximately 18,000 m(3) from our integrated plantation model compared to
zero m3 in the same period in 2009.

    Gross Profit

    Gross profit increased 20.6%, from $68.3 million in Q2 2008 to $82.4
million in the same quarter of 2009. Gross profit margin, being gross profit
expressed as a percentage of revenue, decreased slightly from 36.9% last year
to 36.7% in Q2 2009.

    Wood Fibre Operations Gross Profit

    Plantation Fibre
    Gross profit margin from sales of purchased and planted plantations
decreased from 60.3% in Q2 2008 to 49.7% in the same period in 2009, mainly
due to the sales from plantations with a higher fibre cost per m(3) compared
to sales in the same period in 2008.
    The gross profit margin for sales of logs at integrated plantation
operations was 37.1% or $40 per m(3) in Q2 2008.

    Other Fibre
    Gross profit margin from sales of imported wood products increased from
4.5% in Q2 2008 to 4.7% in the second quarter of 2009.
    Gross profit margin from the sales of wood logs decreased from 23.4% in
Q2 2008 to 17.2% in the same period in 2009.

    Manufacturing and Other Operations
    Gross margin from our manufacturing and other operations increased from
gross loss margin of 0.3% in Q2 2008 to a gross profit margin of 6.5% in the
same period in 2009, primarily due to an improvement in the flooring segments.

    Selling, General and Administration Expenses

    Our selling, general and administration expenses increased 70.9%, from
$9.6 million in the second quarter of 2008 to $16.5 million in the same period
in 2009, due primarily to staff additions and accrued incentive compensation.

    Income from Operations

    Income from operations increased 11.8%, to $64.8 million in the second
quarter of 2009 from $58.0 million in Q2 2008, due to the factors explained
above. Our income from operations as a percentage of revenue decreased from
31.3% in Q2 2008 to 28.9% in the same quarter of 2009.

    Cash Flows from Operating Activities of Continuing Operations

    Net cash provided from operating activities increased from $101.6 million
in the second quarter 2008 to $156.8 million in the same period in 2009. The
increase was due to the increase in cash provided by operations and cash
provided by working capital that resulted from a decrease in accounts
receivables of wood fibre operations.

    
    Capital Expenditures

    -------------------------------------------------------------------------
                         Second Quarter                   First Half
               --------------------------------------------------------------
                      2009            2008            2009            2008
               --------------------------------------------------------------
                           $               $               $               $
               Hectares  in M  Hectares  in M  Hectares  in M  Hectares  in M
    -------------------------------------------------------------------------
    Tree
     acquisition 41,114 152.5    14,165 111.0   117,091 398.1    41,871 188.9
    -------------------------------------------------------------------------
    Re-planting &
     maintenance
     of plantations       7.9             4.2            13.7             8.6
    -------------------------------------------------------------------------
    Panel
     manufacturing
     and others           2.6             8.1             7.8            18.1
    -------------------------------------------------------------------------
    Total               163.0           123.3           419.6           215.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Most of our capital expenditures were incurred at our plantations in Q2
2009, for the acquisition of a variety of mature and immature trees, various
plantation management costs, including land lease costs, the costs of
planting, developing seedlings, fertilization, insecticide, labor and
plantation maintenance service fees.
    For fiscal 2009, capital expenditures are expected to be approximately
$800 million for plantation acquisitions (including $100 million allocated for
Jiangxi from the June 2009 equity offering), 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.

    Outlook

    We are optimistic about the outlook of China's forestry sector and demand
for wood fibre due to the positive effects of China's stimulus plan which
called for further infrastructure development, rebuilding of Sichuan and
building of low-income housing for rural areas. Log prices have rebounded
since Q408/Q109; however, we do not anticipate prices will reach the overall
2008 levels until the latter part of 2009. We continuously monitor market
prices before deciding to sell wood fibre as standing timber and/or as
harvested logs to maximize our return on investment.
    We continue to focus on acquiring standing timber and improving our
operating practices, while building a plantation platform of over one million
hectares for replanting. As at June 30, 2009, we had 434,000 hectares of trees
under management and over 900,000 hectares of trees available to be acquired
under our five long-term master agreements. We believe that we are well
positioned to benefit from the Central Government's goal of doubling
fast-growing, high-yield plantations to 13 million hectares by 2015.

    Notice of Conference Call

    Sino-Forest will hold an investor conference call to further discuss its
second quarter 2009 financial results on August 10, 2009 at 8:30 am EST / 8:30
pm HKT. To participate, please dial +1-416-644-3425 for local and
international callers or 800-590-1817 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 "Earnings Release" or go directly to
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 and sales of standing timber, wood logs,
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 continuing operations for the period after adding
    back depreciation and amortization, impairment of capital assets as well
    as 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, except as required by law.

    
           CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS

      (Expressed in thousands of United States dollars, except for earnings
                           per share information)
                                 (Unaudited)

                                Three months ended          Six months ended
                                           June 30,                  June 30,
                                 2009         2008         2009         2008
                                    $            $            $            $
    -------------------------------------------------------------------------
    Revenue                   224,419      184,981      401,653      320,476

    Costs and expenses
    Cost of sales             142,005      116,672      252,403      205,093
    Selling, general and
     administration            16,453        9,627       32,568       20,263
    Depreciation and
     amortization               1,161          732        2,290        1,404
    -------------------------------------------------------------------------
                              159,619      127,031      287,261      226,760
    -------------------------------------------------------------------------
    Income from operations
     before the undernoted     64,800       57,950      114,392       93,716
    Interest expense          (17,036)      (9,753)     (33,831)     (20,228)
    Interest income             2,276        2,384        4,180        5,265
    Exchange losses              (270)        (600)        (363)      (3,113)
    Gain (loss) on changes
     in fair value of
     financial instruments      2,588        1,194        1,607       (3,341)
    Other income                1,051          646        1,272        1,039
    -------------------------------------------------------------------------
    Income before income
     taxes                     53,409       51,821       87,257       73,338
    Provision for income
     taxes                     (6,390)      (5,245)     (12,316)      (9,519)
    -------------------------------------------------------------------------
    Net income from
     continuing operations     47,019       46,576       74,941       63,819
    Net loss from
     discontinued operations   (1,970)      (3,175)      (6,887)      (5,891)
    -------------------------------------------------------------------------
    Net income for the period  45,049       43,401       68,054       57,928
    -------------------------------------------------------------------------

    Earnings per share
    Basic                        0.23         0.24         0.36         0.32
    Diluted                      0.23         0.24         0.36         0.31
    -------------------------------------------------------------------------

    Earnings per share from
     continuing operations
    Basic                        0.24         0.26         0.40         0.35
    Diluted                      0.24         0.25         0.39         0.35
    -------------------------------------------------------------------------

    Loss per share from
     discontinued operations
    Basic                       (0.01)       (0.02)       (0.04)       (0.03)
    Diluted                     (0.01)       (0.02)       (0.04)       (0.03)
    -------------------------------------------------------------------------

    Retained earnings
    Retained earnings,
     beginning of period      792,562      555,491      769,557      540,964
    Net income for the period  45,049       43,401       68,054       57,928
    -------------------------------------------------------------------------
    Retained earnings, end
     of period                837,611      598,892      837,611      598,892
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


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

                                Three months ended          Six months ended
                                           June 30,                  June 30,
                                 2009         2008         2009         2008
                                    $            $            $            $
    -------------------------------------------------------------------------
    Net income for the period  45,049       43,401       68,054       57,928
    Other comprehensive income:
      Unrealized gains (losses)
       on financial assets
       designated as
       available-for-sale, net
       of tax of nil            5,515          (99)       4,305       (1,048)
      Unrealized gains on
       foreign currency
       translation of
       self-sustaining
       operations               1,230       36,737          494       99,483
    -------------------------------------------------------------------------
    Other comprehensive income  6,745       36,638        4,799       98,435
    -------------------------------------------------------------------------
    Comprehensive income       51,794       80,039       72,853      156,363
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


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

                                                          As at        As at
                                                        June 30, December 31,
                                                           2009         2008
                                                              $            $
    -------------------------------------------------------------------------
    ASSETS
    Current
    Cash and cash equivalents                           657,538      441,171
    Short-term deposits                                  45,972       45,784
    Accounts receivable                                 121,317      225,753
    Inventories                                          44,574       43,200
    Prepaid expenses and other                           26,137       21,768
    Convertible bonds                                    28,617        2,659
    Assets of discontinued operations                    27,161       31,122
    -------------------------------------------------------------------------
    Total current assets                                951,316      811,457
    -------------------------------------------------------------------------
    Timber holdings                                   1,921,781    1,653,306
    Capital assets, net                                  68,887       63,704
    Other assets                                         84,573       75,457
    -------------------------------------------------------------------------
                                                      3,026,557    2,603,924
    -------------------------------------------------------------------------

    LIABILITIES AND SHAREHOLDERS' EQUITY
    Current
    Bank indebtedness                                    69,264       67,188
    Accounts payable and accrued liabilities            164,673      179,903
    Income taxes payable                                  6,740        6,383
    Current portion of long-term debt                    37,500            -
    Derivative financial instrument                       2,890        5,214
    Liabilities of discontinued operations               41,513       32,004
    -------------------------------------------------------------------------
    Total current liabilities                           322,580      290,692
    -------------------------------------------------------------------------
    Long-term debt                                      684,382      714,468
    -------------------------------------------------------------------------
    Total liabilities                                 1,006,962    1,005,160
    -------------------------------------------------------------------------
    Commitments and Contingencies

    Shareholders' equity
    Equity portion of convertible senior notes           70,462       70,462
    Share capital                                       884,968      539,315
    Contributed surplus                                   9,924        7,599
    Accumulated other comprehensive income              216,630      211,831
    Retained earnings                                   837,611      769,557
    -------------------------------------------------------------------------
    Total shareholders' equity                        2,019,595    1,598,764
    -------------------------------------------------------------------------
                                                      3,026,557    2,603,924
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


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

                                Three months ended          Six months ended
                                           June 30,                  June 30,
                                 2009         2008         2009         2008
                                    $            $            $            $
    -------------------------------------------------------------------------
    CASH FLOWS FROM
     OPERATING ACTIVITIES
    Net income for the period  45,049       43,401       68,054       57,928
    Net loss from
     discontinued operations    1,970        3,175        6,887        5,891
    Add (deduct) items not
     affecting cash
      Depletion of timber
       holdings included
       in cost of sales        79,432       48,981      143,637       87,035
      Depreciation and
       amortization             1,161          732        2,290        1,404
      Accretion of
       convertible senior
       notes                    3,045            -        5,904            -
      Stock-based
       compensation             1,239        1,043        2,325        2,176
      (Gain) loss on changes
       in fair value of
       financial instruments   (2,589)      (1,194)      (1,608)       3,341
      Unrealized exchange
       losses                      22        1,795            3        4,292
      Interest income
       from Mandra               (300)        (300)        (600)        (600)
      Other                      (232)         892        1,062        1,421
    -------------------------------------------------------------------------
                              128,797       98,525      227,954      162,888
    Net change in non-cash
     working capital balances  27,951        3,032       96,379      (27,334)
    -------------------------------------------------------------------------
    Cash flows from operating
     activities of continuing
     operations               156,748      101,557      324,333      135,554
    -------------------------------------------------------------------------
    Cash flows from (used in)
     operating activities of
     discontinued operations      215       (1,553)      (2,574)      (3,458)
    -------------------------------------------------------------------------
    CASH FLOWS USED IN
     INVESTING ACTIVITIES
    Additions to timber
     holdings                (191,912)    (115,366)    (425,773)    (199,003)
    Increase in other assets     (351)        (688)      (5,608)     (23,099)
    Additions to capital
     assets                    (2,610)      (8,098)      (5,873)     (18,142)
    Increase in non-pledged
     short-term deposits         (614)      (6,406)      (1,478)     (10,353)
    Business acquisition            -            -            -       (1,928)
    Acquisition of
     convertible bonds              -            -         (200)           -
    Proceeds from disposal
     of capital assets            111            -          111            1
    -------------------------------------------------------------------------
    Cash flows used in
     investing activities    (195,376)    (130,558)    (438,821)    (252,524)
    Cash flows from (used in)
     investing activities of
     discontinued operations   10,068         (358)       9,139        (358)
    -------------------------------------------------------------------------
    CASH FLOWS FROM (USED IN)
     FINANCING ACTIVITIES
    (Decrease) increase in
     bank indebtedness        (6,286)        4,312        2,025      (1,304)
    Decrease (increase) in
     pledged short-term
     deposits                  1,074          (781)       1,302      (2,719)
    Issuance of shares, net
     of issue costs          323,947           289      323,947         289
    Payment on derivative
     financial instrument          -             -       (2,891)     (2,100)
    -------------------------------------------------------------------------
    Cash flows from (used in)
     financing activities    318,735         3,820      324,383      (5,834)
    Cash flows from (used in)
     financing activities of
     discontinued operations       1          (105)           -        (453)
    -------------------------------------------------------------------------
    Effect of exchange rate
     changes on cash and
     cash equivalents            145         1,088          (93)      2,496
    -------------------------------------------------------------------------
    Net increase (decrease)
     in cash and cash
     equivalents             290,536       (26,109)     216,367    (124,577)
    Cash and cash
     equivalents,
     beginning of period     367,002       230,222      441,171     328,690
    -------------------------------------------------------------------------
    Cash and cash
     equivalents,
     end of period           657,538       204,113      657,538     204,113
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Supplemental cash flow
     information
    Cash payment for
     interest charged to
     income                    2,695         3,884       27,264      20,342
    Interest received            506         1,422        1,187       4,017
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    





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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