Hanfeng announces 2006 year end financial results


    TSX Symbol: HF

    TORONTO, March 6 /CNW/ - Hanfeng Evergreen Inc. ("Hanfeng" or the
"Company") today reported its financial results for the fourth quarter and
year ended December 31, 2006. In 2006, the Company successfully completed the
transition from the nursery and landscaping business in order to focus solely
on the expansion of its slow and controlled release fertilizer business. As a
result, Hanfeng's annual financial results are reported on a continuing
operations basis in accordance with Canadian GAAP. All amounts are in Canadian
    For the year ended December 31, 2006, Hanfeng reported significant growth
in its revenues and net income from continuing operations. Revenue increased
by $48.3 million to $59.8 million as the Company successfully grew its
fertilizer production throughout the year. Net income from continuing
operations for the year ended December 31, 2006 was $7.1 million versus a loss
of $0.137 million in the same period in 2005. Net income including
discontinued operations for the year ended December 31, 2006 was $7.9 million
versus net income of $9.8 million in the same period in 2005. Earnings per
share ("EPS"), including discontinued operations, for 2006 were $0.17, a
decrease of $0.07 compared to 2005. The decrease is attributable to costs
associated with the expansion of Hanfeng's fertilizer production capacity,
which increased from 20,000 tonnes per annum in 2005 to 350,000 tonnes per
annum at December 31, 2006.
    "In 2006, we achieved a number of important milestones in addition to
growing our production and capacity," stated Xinduo Yu, Hanfeng's President &
CEO. "We successfully enhanced our brand, increased the number of distributors
for our products, developed and commercialized new products, and established
Hanfeng as the leading producer of slow and controlled release fertilizer in
China. Given the rapidly increasing demand for our fertilizer products and the
sound fundamentals driving our markets, we expect to continue to deliver
substantial top and bottom line performance to our shareholders."
    As at December 31, 2006, Hanfeng reported cash on hand of $2.1 million
and working capital of $10.9 million versus $1.6 million and $16.3 million
respectively in 2005. In 2006, the Company further invested $18 million in the
construction of four production facilities, which are now fully operational.
The construction was financed through debt facilities with China-based banks,
which provide more favorable lending terms. At December 31, 2006, long-term
debt was $4.8 million and bank debt totaled $13.5 million.

    Operations Update

    Hanfeng's facilities are strategically located in two key regions in
China: the northeast region in the Heilongjiang province and the east region
located in Jiangsu Province. Combined, these two regions account for almost
one-third of the agricultural fertilizer consumption in China.
    In the northeast region, also known as China's "corn-belt" the Company
has 2 plants and is currently expanding its annual productive capacity from
100,000 tonnes to 300,000 tonnes. Construction of the plant expansions is well
ahead of schedule and commissioning is expected to begin in March. Hanfeng
expects the expanded facilities to be fully operational within the second
quarter. Hanfeng has also commissioned a 50,000 tonne per annum blending
facility at Heilongjiang, which has the ability to blend Hanfeng's products
with other nutrients. As a result, the total annual productive capacity for
the combined facilities in this region is now 350,000 tonnes.
    In the east region, the Company has 3 plants with a total of
250,000 tonnes of annual production capacity, which includes 200,000 tonnes of
finished goods and 50,000 tonnes of blending capacity.

    Business Highlights:

    -   Completed the acquisition and construction of (4) new production
        facilities on time and on budget (350,000 tonnes capacity)

    -   Commercialized proprietary Urea Formaldehyde and Methylene Urea
        technologies developed by Hanfeng's in-house R&D team

    -   Hosted the 6th International Symposium on Eco-Industry & Sustainable
        Development ("Symposium") in Ghent, Belgium - the first time a
        Chinese company has hosted a symposium on slow-release fertilizer in

    -   Completed successful first year field trials of Hanfeng's Sulfur
        Coated Urea slow-release fertilizer with the China National Hybrid
        Rice R&D Center

    -   Pre-sales exceed $60 million for slow release fertilizer in 2007

    -   Teamed with Heilongjiang Agriculture Company Limited, the largest
        state-owned agricultural company in China, for the sale and
        distribution of Hanfeng's fertilizers

    -   Further strengthened the Company's balance sheet and lowered its cost
        of capital by accessing China bank debt and securing working capital

    Balance Sheet Highlights
    (In thousand except for ratios)   December 31, 2006     December 31, 2005
    Current ratio                         1.6 : 1               3.6 : 1
    Cash                                    2,104                 1,651
    Working capital                        10,936                16,330
    Total assets                          108,072                70,091
    Total debt                             22,943                 6,352
    Loans payable (current portion)        13,492                 3,571
    Total equity                           85,129                63,118
    Debt/Equity                               27%                   10%

    Summary 2006 Financial Results
                              For the 3 month period  For the 12 month period
                                ended December 31       ended December 31
    (in thousands in $Cdn)      2006    2005  change    2006    2005  change
                                                             (Note a)
    Sales                     24,303   3,136    675%  59,849  11,503    420%
    Gross profit               5,102     942    442%  12,145   3,630    235%
    Net earnings before
     discontinued operation    3,439      50   6778%   7,072    (137)  5262%
    Net earnings of
     discontinued operation      120   2,420    (95%)    829   9,969    (92%)
    Net earnings               3,559   2,470     44%   7,901   9,832    (20%)

    From continuing operations:
      Basic EPS                 0.07       -    0.07    0.15       -    0.15
      Dilutive EPS              0.07       -    0.07    0.15       -    0.15
    After discontinued
      Basic EPS                 0.07    0.05    0.02    0.17    0.24   (0.07)
      Dilutive EPS              0.07    0.06    0.01    0.17    0.24   (0.07)
    Note a: discontinued operations include nursery and landscaping
    businesses that were discontinued in 2005 and 2006 respectively.
    Comparative statements have been reclassified to present these businesses
    as discontinued operations.

    Sales for the fourth quarter and for the twelve months ended December 31,
2006, increased by 675% and 420% respectively, compared to the same periods in
the prior year. These significant increases are due to increased production
volumes from the four new plants that commenced operations in the second,
third and fourth quarter of 2006. Total tonnage sold in 2006 was approximately
169,000 tonnes.

    EBITDA from continuing operations increased significantly for both the
fourth quarter (by 1439%) and the year (by 1149%) ended December 31, 2006,
compared with the same periods in the prior year. As a percentage of sales,
EBITDA increased from 9.2% to 18.3% in the fourth quarter and from 6.8% to
16.3% in 2006, compared with the same periods last year. The increase in
EBITDA is attributable to increased efficiency in plant utilization due to
increased operational capacity. (EBITDA is a non-GAAP measurement.
Reconciliation can be found in Hanfeng's MDA filed on SEDAR).

    Gross profit for the fourth quarter increased accordingly by $4.2 million
(or 442%) and by $8.5 million (or 235%) for the year, compared to the same
periods from the prior year.
    Gross profit as a percentage of sales decreased from 30% to 21% in the
fourth quarter, and from 31.6% to 20.3% for the year, compared with the same
periods of last year. The decrease was due to lower margins on the sales from
the new plants to the agriculture market than the sales to the urban greening
market. Hanfeng believes the demand for its slow and controlled release
fertilizer from the China agriculture market will far exceed the urban
greening market.
    Selling, general and administrative ("SG&A") expenses increased overall
in 2006 (from $2 million to $2.9 million. However SG&A as a percentage of
sales decreased (from 17.4% to 4.9%) commensurate with the increase in
production and fertilizer sales revenue. The percentages in 2005 were higher
because all corporate overhead costs have been allocated to the continuing
operations as a result of the GAAP requirements.
    Hanfeng is subject to income taxes in Canada, while the subsidiaries are
subject to the income tax laws of China. Various subsidiaries in China receive
different income tax incentives because they are qualified foreign investment
companies in China and encouraged by the local governments. As a result, the
Company's income tax rate in China for 2006 is 0% (2005 - 0%) for the
continuing operations, and 10% (2005 - 10%) for the discontinued operation.


    All the production facilities added in 2006 (350,000 tonnes per annum in
aggregate at year end) have gone through a full commissioning period and are
expected to be operating at a normal capacity in 2007. Additional production
will accrue from the 200,000 tonnes to be commissioned, and the recently
commissioned 50,000 tonne blending facility at Heilongjiang. Based on the
capacity available for sale in 2007 and the current market conditions, Hanfeng
expects that annual production will increase significantly from the 169,000
reported for 2006 and that both sales and earnings will increase accordingly.
    Hanfeng intends to optimize its return on investment and supply the
growing demand from current and new customers by expanding production capacity
at its Heilongjiang and Jiangsu production and sales centres. Hanfeng is
evaluating plans to add a further 150,000 to 200,000 tonnes of annual
production capacity to these sites. Several slow-release fertilizer
technologies, which have been developed by Hanfeng's R&D team or acquired by
the Company, are currently being evaluated.
    Hanfeng is also investigating opportunities for growth through alliances
with domestic producers of conventional fertilizer, where Hanfeng could
potentially blend its slow and controlled release technology with their
products. In its 11th 5-Year Plan, China has made the agricultural sector a
top priority. These policies promote the use of more efficient, effective, and
environmentally friendly fertilizers. Companies that supply the agricultural
sector are encouraged by the government to support these policies. Numerous
synergies exist through an alliance strategy, including an immediate product
upgrade for the conventional producer. For Hanfeng the alliance could provide
a lower cost alternative to grow capacity.
    "With our successful track record and numerous opportunities for growth,
Hanfeng will continue build on its position as the leader in the slow and
controlled release fertilizer industry in China," stated Mr. Yu.
    Hanfeng Evergreen Inc. will host a conference call to discuss its fiscal
2006 financial results. Ms. Madeline Yu, CFO and Robert Beutel, Chairman of
the Board, will host the call.

    Date:                       Wednesday, March 7, 2007

    Time:                       10:00 am, Eastern Time

    Dial in Number:             1-866-902-2211 or 416-695-9712

    Taped Replay:               1-888-509-0081 or 416-695-5275
                                (available for 14 days)

    Taped Replay Pass Code:     641066

    Live Webcast Link:

    About Hanfeng Evergreen Inc.
    Hanfeng is a leading provider of slow and controlled release fertilizers
to blenders, the agriculture market and the urban greening market. Hanfeng was
the first to introduce the concept of slow and controlled release fertilizers
into China's agriculture market with its establishment of the first commercial
scale slow-release fertilizer production in China. All production facilities
are located in prime agricultural regions of China. The Company is
headquartered in Toronto, Ontario and its shares trade on the Toronto Stock
Exchange. For more information, please visit: www.hanfengevergreen.com

    This press release contains forward-looking statements based on current
expectations.  These forward-looking statements entail various risks and
uncertainties that could cause actual results to differ materially from those
reflected in these forward-looking statements.  Risks and uncertainties about
Hanfeng's business are more fully discussed in the Company's disclosure
materials, including its annual information form and MD&A, filed with the
securities regulatory authorities in Canada.

    Consolidated Balance Sheets
    (Expressed in thousands of Canadian dollars)

    December 31, 2006 and 2005

                                                           2006         2005


    Current assets:
      Cash                                            $   2,104    $   1,651
      Term deposit                                          316          309
      Accounts receivable                                 5,394        1,804
      Prepaid inventory and deposits (note 2)            11,636        8,965
      Inventories                                         9,555        1,291
      Assets held for sale                                    -        8,662
                                                         29,005       22,682

    Deferred financing cost                                 294          174
    Deferred development costs (note 3)                     532          335
    Intangible assets (note 4)                            1,104        1,153
    Construction in progress                             16,679       37,368
    Property, plant and equipment (note 5)               60,458        8,379

                                                      $ 108,072    $  70,091

    Liabilities and Shareholders' Equity

    Current liabilities:
      Loans payable (note 7)                          $  13,492    $   3,570
      Accounts payable and accrued liabilities            2,897        2,028
      Advance from customers                              1,607          102
      Income taxes payable                                   73          652
                                                         18,069        6,352

    Long-term debt (note 7)                               4,874            -

    Minority interest (note 8)                               -           621

    Shareholders' equity:
      Share capital (note 9):
        Common shares                                    44,417       32,776
      Contributed surplus (note 9)                        1,024        1,725
      Cumulative translation adjustment                  (4,530)      (7,700)
      Retained earnings (note 10)                        44,218       36,317
                                                         85,129       63,118
    Commitments (note 14)
    Subsequent events (note 18)

                                                      $ 108,072    $  70,091

    See accompanying notes to consolidated financial statements.

    On behalf of the Board:

    "Graham Warren"      Director    "Robert Beutel"     Director
    --------------------             -------------------

    Consolidated Statements of Income and Retained Earnings
    (Expressed in thousands of Canadian dollars, except per share amounts)

    Years ended December 31, 2006 and 2005

                                                           2006         2005

    Sales                                             $  59,849    $  11,503

    Cost of goods sold                                   47,704        7,873

    Gross profit                                         12,145        3,630

      Selling                                               582          307
      General and administrative                          2,356        1,698
      Write-off of deferred financing cost                  126            -
      Amortization                                          750          142
      Loss on disposal of property, plant and
       equipment                                             61            -
      Research and development (note 3)                     603          811
      Loss (gain) on foreign exchange                       (20)          19
      Stock-based compensation (note 9)                     142          448
                                                          4,600        3,425

    Operating income                                      7,545          205

    Interest expense                                        473          230

    Income (loss) from continuing operations before
     minority interest                                    7,072          (25)

    Minority interest                                         -         (112)

    Net income (loss) from continuing operations          7,072         (137)

    Net income from discontinued operations (note 13)       829        9,969

    Net income                                            7,901        9,832

    Retained earnings, beginning of year                 36,317       26,485

    Retained earnings, end of year                    $  44,218    $  36,317

    Income per share from continuing operations
     (note 9):
      Basic                                           $    0.15    $       -
      Diluted                                              0.15            -

    Income per share from discontinued operations
     (note 9):
      Basic                                                0.02         0.24
      Diluted                                              0.02         0.24

    Income per share (note 9):
      Basic                                                0.17         0.24
      Diluted                                              0.17         0.24


    See accompanying notes to consolidated financial statements.

    Consolidated Statements of Cash Flows
    (Expressed in thousands of Canadian dollars)

    Years ended December 31, 2006 and 2005

                                                           2006         2005

    Cash provided by (used in):

    Operating activities:
      Net income (loss) from continuing operations    $   7,072    $    (137)
      Items not involving cash:
        Amortization                                      2,182          684
        Write-off of deferred financing cost                126            -
        Loss on disposal of property, plant and
         equipment                                           61            -
        Minority interest                                     -          112
        Stock-based compensation                            142          448
                                                          9,583        1,107
      Change in non-cash operating working capital
       (note 16)                                        (18,363)      (8,863)
      Cash used in operating activities of continuing
       operations                                        (8,780)      (7,756)
      Cash provided by (used in) operating activities
       of discontinued operations                          (571)      23,792
                                                         (9,351)      16,036
    Financing activities:
      Decrease (increase) in term deposit                    (7)           4
      Proceeds from loans payable                        15,214            -
      Repayments of loans payable                        (5,837)        (523)
      Shares issued for cash                              9,694       17,750
      Share issuance cost paid                                -       (2,060)
      Cash paid for financing cost                         (428)         (15)
      Decrease in shareholder loan                            -          (35)
                                                         18,636       15,121

    Investing activities:
      Acquisition of property, plant and equipment
       and intangible assets                            (18,037)     (34,292)
      Deferred development costs                           (176)        (225)
      Proceeds from disposal of property, plant and
       equipment                                             16            -
      Cash used in investing activities of continuing
       operations                                       (18,197)     (34,517)

      Acquisition of property, plant and equipment            -         (552)
      Proceeds from disposition                           9,375        1,851
      Cash provided by investing activities of
       discontinued operations                            9,375        1,299
                                                         (8,822)     (33,218)

    Effect of exchange rate changes on cash                 (10)        (306)

    Increase (decrease) in cash                             453       (2,367)

    Cash, beginning of year                               1,651        4,018

    Cash, end of year                                 $   2,104    $   1,651

    Supplemental cash flow information (note 16)

    See accompanying notes to consolidated financial statements.

For further information:

For further information: Madeline Haiying Yu, CA, Hanfeng Evergreen
Inc., Chief Financial Officer, Email: info@hanfengevergreen.com, Phone: (416)
368-8588; Kevin O'Connor, Genoa Management Ltd., Investor Relations, Email:
koconnor@genoa.ca, Phone: (416) 962-3300

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