Sino-Forest Achieves Strong Fourth Quarter and Annual 2009 Results

TORONTO, March 16, 2010 /CNW/ - Sino-Forest Corporation ("Sino-Forest") (TSX:TRE) today announced its financial results for the fourth quarter and full year ended December 31, 2009. All amounts in this news release are expressed in U.S. dollars unless otherwise indicated.

Financial and Operating Highlights for 2009 compared to 2008:

    -   Revenue of $1.2 billion, increased 38% year over year
    -   Diluted Earnings Per Share of $1.38, up 11%
    -   Sold 14 million cubic metres (m(3)) of plantation fibre, increased
    -   Increased plantation area under management 48% to 512,700 ha at year
    -   Raised gross proceeds of approximately $1.1 billion primarily to fund
        growth by securing additional long-term fibre with capped acquisition
        costs in strategic locations

    (US$ millions,      Three months ended            Twelve months ended
     except margins         December 31                    December 31
     and per share    2009      2008    Change      2009      2008    Change
     amounts)            $         $         %         $         $         %
    Revenue          469.6     281.9      66.6   1,238.2     896.0      38.2

    Gross Profit(1)  147.3     122.0      20.8     440.9     366.0      20.5

    Gross Profit
     Margin          31.4%     43.3%  (11.9%pt)    35.6%     40.8%   (5.2%pt)

    EBITDA(2)        356.0     194.1      83.4     898.3     597.1      50.4

    Net Income       112.7      95.5      18.0     286.4     228.6      25.3

     Earnings Per
     Share            0.49      0.51      (3.0)     1.38      1.24      11.3

    Cash Flow From
     Activities      226.0     215.0       5.1     784.5     487.2      61.0

    See notes (1) and (2) at end of this news release.

Sino-Forest Chairman and CEO Allen Chan said, "We are delighted to report that Sino-Forest had another excellent year with very strong operating and financial performance in 2009. Our company benefited from China's 4 trillion yuan economic stimulus plan, which bolstered demand for wood fibre and helped log prices rebound during the second half of last year. Our record results also reflect our proven track record and the flexibility of our multiple plantation models, which enabled us to sustain attractive returns despite the economic slowdown in the first half of 2009."

"We are very grateful to our existing and new shareholders and lenders who have been supportive by participating in our funding initiatives. Proceeds from our financings in 2009 of approximately US$1.1 billion are allowing Sino-Forest to, among other things, lock in access to additional plantation fibre and lands at fair and attractive prices in commercially strategic locations. Increasingly under our integrated plantation model, we plan to convert lower-yielding forests into fast-growing high-yielding plantations," added Mr. Chan.

Business Segment Highlights

Total revenue increased 38.2% to US$1,238.2 million in 2009, mainly due to the increase in sales from our wood fibre operations.

Wood Fibre Operations

Revenue from sales of plantation fibre increased 39.2% to $954.2 million in 2009, mainly due to increase in volume of fibre sold in 2009.

                  Year ended December 31, 2009  Year ended December 31, 2008
    Plantation             Sales per     Total           Sales per     Total
     Model        Hectares   hectare   revenue  Hectares   hectare   revenue
                                   $     $'000                   $     $'000
     plantations    58,350     9,557   557,666    86,067     6,040   519,872
     plantations    44,057     8,775   386,595    14,071    11,313   159,185
     plantations     6,782     1,465     9,933     3,807     1,667     6,347
    Total          109,189     8,739   954,194   103,945     6,594   685,404

The total volume of fibre sold in 2009 increased 40.4% to approximately 14.2 million m(3), with approximately 9.3 million m(3) from purchased and planted plantations and approximately 4.9 million m(3) from integrated plantations. During 2008, we sold approximately 10.2 million m(3) with approximately 8.6 million m(3) from purchased and planted plantations and approximately 1.6 million m(3) from integrated plantations.

The average yield of fibre sold from purchased and planted plantations was up 48.7% in 2009 to 142 m(3) per hectare compared to 96 m(3) per hectare in 2008. In both years, we obtained an average selling price of approximately $61 per m(3).

The average yield of logs sold from integrated plantations in 2009 was 113 m(3) per hectare and for which we obtained an average selling price of $78 per m(3). During 2008, the average yield of integrated plantation logs was 111 m(3) per hectare and obtained an average selling price of $102 per m(3). The average selling price of $102 per m(3) in 2008 included harvesting costs as harvesting was organized and managed by us while the average selling price of $78 per m(3) in 2009 excluded harvesting costs as the harvesting was managed by the buyer.

Plantation fibre sales comprised 77.1% of total revenue in 2009, compared to 76.5% in 2008.

At year end 2009, total plantation area under management was 512,700 hectares, up 48% from the end of 2008. This excludes approximately 155,600 hectares acquired from Mandra Forestry as the acquisition was completed in February 2010.

According to the preliminary forest asset valuation conducted by independent forestry consultants, Poyry Forestry Industry Pte Ltd., the estimated volume of Sino-Forest's merchantable standing timber increased 67.1% to approximately 62.7 million m(3) by year end 2009. The valuation of Sino-Forest's forest assets as at December 31, 2009, based on a single rotation, was approximately $2.30 billion, and based on a perpetual rotation was approximately $2.13 billion (using a pre-tax discount rate of 11.5%); this represents increases of 39.7% and 25.7%, respectively, from the 2008 valuations. A full copy of the valuation report will be posted on our website under "Filings" and also filed on on or about March 31, 2010.

Other Fibre

Revenue from sales of imported wood products increased 67.2% from $139.7 million in 2008 to $233.5 million in 2009. This increase was primarily due to the higher volume of Russian logs sold.

Revenue from sales of domestic wood logs decreased 68.3% from $13.8 million in 2008 to $4.4 million in 2009.

Other fibre sales comprised 19.2% of total revenue in 2009, compared to 17.1% of total revenue in 2008.

Manufacturing and Other Operations

Revenue from our manufacturing and other operations decreased 19.4% from $57.1 million in 2008 to $46.1 million in 2009, mainly due to the lower sales from the Hunan production facilities.

Gross Profit

Gross profit increased 20.5%, from $366.0 million in 2008 to $440.9 million in 2009. Gross profit margin, being gross profit expressed as a percentage of revenue, decreased from 40.8% in 2008 to 35.6% in 2009, mainly due to the reduced gross profit margin from plantation fibre operations.

Selling, General and Administration Expenses

Our selling, general and administration expenses increased 20.8%, from $53.4 million in 2008 to $64.5 million in 2009. The increase was due primarily to additional staff complement, increased accrued incentive compensation and increased research & development expenses.

Net Income

As a result of the foregoing, net income for the year increased 25.3%, from $228.6 million in 2008 to $286.4 million in 2009. Overall net income as a percentage of revenue decreased from 25.5% in 2008 to 23.1% in 2009.

Cash Flows from Operating Activities of Continuing Operations

Net cash provided from operating activities increased 61.0% from $487.2 million in 2008 to $784.5 million in 2009. This was due to the increase in cash provided by operations and cash provided by a reduction of working capital, which resulted mainly from a decrease in accounts receivables in wood fibre operations.

Capital Expenditures

                3 months ended December 31     12 months ended December 31
                   2009            2008            2009            2008
                Hec-            Hec-            Hec-            Hec-
               tares  $ in M   tares  $ in M   tares  $ in M   tares  $ in M
     sition   76,431   338.6  64,302   271.3 255,503 1,016.4 127,834   646.4
     & maintenance
     of plantations      8.1            10.7            36.3            26.1
     and others          8.3             5.0            19.1            30.1
                       355.0           287.0         1,071.8           702.6

In 2009, we acquired a total of 255,503 hectares of tree plantations, of which 89% are under our long-term master agreements in the provinces of Guangxi, Hunan, Yunnan and Jiangxi.

We replanted a total of approximately 18,657 hectares of plantation land in 2009. Expenditures for re-planting and maintenance included various costs for plantation management, land leases, planting, developing seedlings, fertilization, insecticide, labour and plantation maintenance service fees. Capital expenditures for manufacturing plants included the costs of constructing the facilities and purchasing and installing production line equipment.

The difference between the cash outlays for our forestry plantations in the consolidated statements of cash flows and the above capital expenditures on plantations was due to non-cash transactions such as the movement of accounts payable and capitalization of deposit paid for the acquisition of plantations from other assets to timber holdings.

For fiscal 2010, capital expenditures are expected to be approximately $1.3 billion for plantation acquisitions, replanting and maintenance, and approximately $30 million for the development of manufacturing facilities. These acquisition levels will be adjusted as necessary given future changes in the economic climate in the PRC.


Although China's Central Government aims to tighten its credit lending in 2010 to avoid the economy from over-heating, economists generally expect that credit growth will nonetheless remain at the double-digit level with GDP estimated to grow approximately 6% per annum. In addition, China has committed to build over four million affordable housing units over the next three years. Recent policy initiatives are expected to encourage urbanization, so that an estimated 300 million rural inhabitants are expected to migrate into cities over the next decade resulting in higher income and consumption. This movement is expected to create a surge in demand for new town developments, infrastructure and wood products for housing and interior decoration products.

China's chronic wood fibre deficit is expected to continue to increase during this decade due to increased demand outpacing availability of supply. Moreover, China is aiming to increase the proportion of energy generated from non-fossil fuels such as bio-fuels.

Regarding the reform of state-owned forest plantations and the commercialization of their management, we are hopeful that China's new forestry policy will be rolled out in 2010. We believe that Sino-Forest is well positioned to provide plantation management expertise and investment capital in cooperation with local forestry authorities to achieve this important and ambitious goal.

Our BVI subsidiaries deriving income from sources in the PRC are subject to PRC enterprise income tax on a deemed profit basis. The deemed profit percentage applied by management to plantation fibre sales is 10% for 2009 and prior years. The PRC tax authorities issued a Circular in February 2010 which states that the deemed profit percentage for certain activities should be a minimum of 15%. The activities described that would be subject to the minimum 15% deemed profit percentage appear to include sales of plantation fibre. The scope of the application of this provision is uncertain. Management expects that this will impact our accounting for uncertainty in income tax and will result in an increase to our tax related contingency recorded on our financial statements. While we continue to assess the impact, based on current information and where the minimum 15% deemed profit percentage is applied, we expect that our tax provision may increase by an additional amount of between 5 to 10 cents per share over the 2010 fiscal year, thus reducing our reported earnings per share by the same amount. We do not expect there to be any impact on revenue, gross margin, income before tax or cash flows during the year.

With strong liquidity on hand, we plan on continuing to accelerate the execution of our master agreements. Income generated from our growing integrated plantation model will fund our replanting expenditures. We are confident that Sino-Forest will continue to lead its industry, with a strong market position, unmatched silviculture and market knowledge, and consistent operational excellence.

Notice of Conference Call

Sino-Forest will hold an investor conference call to further discuss its fourth quarter and year-end 2009 operating and financial results on March 16, 2010 at 8:30 am EST / 8:30 pm HKT, follow by a question and answer session. The Company will only take questions from research analysts covering Sino-Forest. To participate, please dial +1-647-427-7450 for local and international callers. Or for toll-free access, dial 1-888-231-8191 for North America, 800-901-563 for Hong Kong, or 800-101-2020 for Singapore.

Alternatively, to listen to the live webcast in a listen-only mode and replay of webcast, click on the following link: or go to Sino-Forest's website under "Investor Relations - Earnings Releases".

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. Learn more at

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, as well as depletion of timber holdings in 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. Words such as "expects", "anticipates", "intends", "plans", "believes", "estimates", or similar expressions, are forward-looking statements. Forward-looking statements include, without limitation, the information concerning possible or assumed future results of operations of Sino-Forest. These statements are not historical facts but instead represent only Sino-Forest's expectations, estimates and projections regarding future events. These statements are not guarantees of future performance and involve assumptions and risks and uncertainties that are difficult to predict. Therefore, actual results may differ materially from what is expressed, implied or forecasted in such forward-looking statements. In addition to the factors Sino-Forest currently believes to be material such as, but not limited to, 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 the relationship with local plantation land owners and/or plantation land use rights holders, 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, evaluation of our provision for income and related taxes and economic, political and social conditions and government policy in the PRC, other factors not currently viewed as material could cause actual results to differ materially from those described in the forward-looking statements. Although Sino-Forest has attempted to identify important risks and factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors and risks that cause actions, events or results not to be anticipated, estimated or intended. Accordingly, readers should not place any undue reliance on forward-looking statements. The Company does not undertake any obligation to update or release any revisions to these forward-looking statements to reflect events or circumstances after the date of this report, except as required by law.

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

    Years ended December 31,                               2009         2008
                                                              $            $
    Revenue                                           1,238,185      896,045

    Costs and expenses
    Cost of sales                                       797,292      530,083
    Selling, general and administration                  64,488       53,372
    Depreciation and amortization                         4,693        3,206
                                                        866,473      586,661
    Income from operations before the undernoted        371,712      309,384
    Interest expense                                    (70,977)     (51,933)
    Interest income                                       9,691       12,604
    Exchange losses                                      (4,958)      (4,735)
    Loss on changes in fair value of financial
     instruments                                           (417)      (1,839)
    Other income                                          1,600        1,946
    Income before income taxes                          306,651      265,427
    Provision for income taxes                          (27,864)     (24,105)
    Net income from continuing operations               278,787      241,322
    Net income (loss) from discontinued operations        7,583      (12,729)
    Net income for the year                             286,370      228,593

    Earnings per share
    Basic                                                  1.39         1.25
    Diluted                                                1.38         1.24

    Earnings per share from continuing operations
    Basic                                                  1.35         1.32
    Diluted                                                1.34         1.31

    Earnings (losses) per share from discontinued
    Basic                                                  0.04        (0.07)
    Diluted                                                0.04        (0.07)

    Retained earnings
    Retained earnings, beginning of year                769,557      540,964
    Net income for the year                             286,370      228,593
    Transfer to statutory reserve                        (1,670)           -
    Retained earnings, end of year                    1,054,257      769,557

              (Expressed in thousands of United States dollars)

    Years ended December 31,                               2009         2008
                                                              $            $
    Net income for the year                             286,370      228,593
    Other comprehensive income:
      Unrealized gains on foreign currency
       translation of self-sustaining operations          3,819      108,038
      Unrealized gains (losses) on financial assets
       designated as available-for-sale, net of tax
       of $1,403 (2008: $Nil)                             8,498       (1,494)
    Other comprehensive income                           12,317      106,544
    Comprehensive income                                298,687      335,137

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

    As at December 31,                                     2009         2008
                                                              $            $
    Cash and cash equivalents                         1,102,366      441,171
    Short-term deposits                                  70,387       45,784
    Accounts receivable                                 282,306      225,753
    Inventories                                          45,978       43,200
    Prepaid expenses and other                           54,747       21,768
    Convertible bonds                                    29,446        2,659
    Assets of discontinued operations                     1,531       31,122
    Total current assets                              1,586,761      811,457
    Timber holdings                                   2,183,489    1,653,306
    Capital assets, net                                  77,377       63,704
    Other assets                                        116,272       75,457
                                                      3,963,899    2,603,924

    Bank indebtedness                                   103,991       67,188
    Accounts payable and accrued liabilities            250,287      179,903
    Income taxes payable                                  7,346        6,383
    Liabilities of discontinued operations               12,156       32,004
    Derivative financial instrument                           -        5,214
    Total current liabilities                           373,780      290,692
    Long-term debt                                      925,466      714,468
    Total liabilities                                 1,299,246    1,005,160
    Commitments and Contingencies

    Shareholders' equity
    Equity portion of convertible senior notes          158,883       70,462
    Share capital                                     1,213,495      539,315
    Contributed surplus                                  12,200        7,599
    Accumulated other comprehensive income              224,148      211,831
    Statutory reserve                                     1,670            -
    Retained earnings                                 1,054,257      769,557
    Total shareholders' equity                        2,664,653    1,598,764
                                                      3,963,899    2,603,924

              (Expressed in thousands of United States dollars)

    Years ended December 31,                               2009         2008
                                                              $            $
    Net income for the year                             286,370      228,593
    Net (income) loss from discontinued operations       (7,583)      12,729
    Add (deduct) items not affecting cash
      Depletion of timber holdings included in cost
       of sales                                         521,889      284,532
      Depreciation and amortization                       4,693        3,206
      Accretion of convertible senior notes              13,689        4,769
      Stock-based compensation                            4,601        4,276
      Impairment of capital assets                            -          219
      Loss on changes in fair value of financial
       instruments                                          417        1,839
      Unrealized exchange losses                          1,880        5,604
      Interest income from Mandra                        (1,200)      (1,200)
      Other                                                 957        2,656
                                                        825,713      547,223
    Net change in non-cash working capital balances     (41,196)     (60,040)
    Cash flows from operating activities of
     continuing operations                              784,517      487,183
    Cash flows used in operating activities of
     discontinued operations                               (826)      (3,826)
    Additions to timber holdings                     (1,032,009)    (656,727)
    Increase in other assets                            (38,041)      (9,554)
    Additions to capital assets                         (11,649)     (29,187)
    Increase in non-pledged short-term deposits         (10,942)      (5,604)
    Business acquisition                                      -       (1,928)
    Acquisition of convertible bonds                       (200)           -
    Proceeds from disposal of capital assets                216            8
    Cash flows used in investing activities          (1,092,625)    (702,992)
    Cash flows from (used in) investing activities
     of discontinued operations                          24,120       (1,236)
    Payment on deferred financing costs                 (27,591)      (9,135)
    Payment on derivative financial instrument           (5,781)      (4,919)
    Increase in bank indebtedness                        36,534       16,031
    Increase in pledged short-term deposits             (13,633)     (16,314)
    Issuance of shares, net of issue costs              652,474        1,591
    Increase in long-term debt                          460,000      345,000
    Repayment of long-term debt                        (150,000)           -
    Cash flows from financing activities                952,003      332,254
    Cash flows used in financing activities of
     discontinued operations                             (5,972)        (460)
    Effect of exchange rate changes on cash and
     cash equivalents                                       (22)       1,558
    Net increase in cash and cash equivalents           661,195      112,481
    Cash and cash equivalents, beginning of year        441,171      328,690
    Cash and cash equivalents, end of year            1,102,366      441,171
    Supplemental cash flow information
    Cash payment for interest charged to income          52,363       38,644
    Interest received                                     3,723        9,837

SOURCE Sino-Forest Corporation

For further information: For further information: DAVE HORSLEY, Senior Vice President and Chief Financial Officer, Tel: (905) 281-8889, Email:; LOUISA WONG, Senior Manager, Investor Communications & Relations, Tel: +852 2514 2109, Email:

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