Sino-Forest Increases Net Income 74% and EPS 44% in Second Quarter 2007



    Sino-Forest appoints Ernst & Young as Auditor

    TORONTO, Aug. 13 /CNW/ - Sino-Forest Corporation ("Sino-Forest") (TSX:TRE
and TRE.S) announced today its second quarter 2007 financial results. All
amounts in this release are expressed in U.S. dollars unless otherwise
indicated.

    
    Financial Highlights

    (US$ millions,
     except margins
     and per share       Three months ended             Six months ended
     amounts)              June 30, 2007                 June 30, 2007
                      2007      2006    Change      2007      2006    Change
                         $         $         %         $         $         %
    -------------------------------------------------------------------------
    Revenue          128.8     107.3      20.0     248.7     206.1      20.7
    Gross Profit(1)   42.1      28.4      48.2      75.5      50.8      48.6
    Gross Profit
     Margin           32.7      26.5   6.2% pt      30.4      24.7   5.7% pt
    EBITDA(2)         62.3      47.6      31.1     110.3      89.8      22.9
    Net Income        25.0      14.4      74.1      37.9      23.8      58.9
    Diluted Earnings
     Per Share        0.15      0.10      43.5      0.24      0.17      42.5
    Cash Flow From
     Operating
     Activities       20.1      32.1     (37.2)     69.4      97.3     (28.7)

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

    Allen Chan, Chairman and CEO of Sino-Forest Corporation, said, "Despite
our normally slower season in the first and second quarters of the year, we
are very pleased with the strong financial results recorded in the second
quarter of 2007, given the fact that the EPS was diluted because of recent
financings but the cash raised has not been generating any significant
earnings yet. In the second quarter, we concentrated on laying out our plan to
ramp up operations of our recently expanded forestry base in Hunan and Yunnan
provinces in south-west China. We look forward to applying our skills in
sustainable forestry management in those key regions in order to increase
plantation yield and the value-add of our wood fibre, while preserving the
unique bio-diversity and environment of our forest plantations."

    Business Segment Highlights

    Revenue in second quarter 2007 increased 20% to $129 million, with major
contributions coming from the sales of standing timber and imported wood
products.

    
    Wood Fibre Operations
    Standing Timber

                   Three months ended June 30,   Three months ended June 30,
                               2007                         2006
                           Sales per     Total           Sales per     Total
                  Hectares   hectare   revenue  Hectares   hectare   revenue
                                   $     $'000                   $     $'000
    -------------------------------------------------------------------------
    Purchased
     plantations    15,477     4,461    69,036     6,999     3,621    25,342
    Heyuan Pine
     Undertaking         -         -         -    11,459     1,704    19,530
    Planted
     plantations       726     2,028     1,472     1,372     1,046     1,435
    -------------------------------------------------------------------------
    Total           16,203     4,352    70,508    19,830     2,335    46,307
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    A total 16,203 hectares of trees were sold in second quarter and standing
timber revenue was up 52% to $71 million, compared to the second quarter last
year, and revenue rose as trees with higher yield in cubic metres commanded a
higher average selling price per hectare. Trees sold during the quarter last
year were mainly pine species in Heyuan. Standing timber sales contributed 55%
of overall revenue in the second quarter of 2007, compared to 43% in the same
period of 2006. No sales of standing timber were recorded in Hunan or Yunnan.

    Imported Wood Products
    Revenue from sales of imported wood products rose 50% to $48 million in
the second quarter of 2007 from $32 million in same quarter last year; these
were sourced from South America and other countries.
    In the third quarter of 2007, Sino-Forest signed a master sale and
purchase agreement with Greenheart Resources Holdings Ltd ("Greenheart"), a
natural forest concession owner and operator in Suriname, South America. In
addition, we invested $6 million to acquire approximately 13% equity interests
in Greenheart - a strategic move to secure dependable access to quality logs
from Suriname and to further strengthen our revenue from this business
segment.

    Wood Chips and Logs
    Revenue from the sales of wood chips and logs dropped 95% to $1 million
in the second quarter of 2007, compared to $23 million in the same period in
2006. This decline, resulting from a lack of third-party wood chip processing
capacity, had been anticipated and previously reported.

    Manufacturing and Other Operations

    Revenue from this business segment increased 59% from $6 million last
year to $9 million in the second quarter of 2007, mainly attributable to sales
generated from our engineered wood flooring business.

    Gross profit was $42 million in the second quarter of 2007 - an increase
of 48% from a year ago. Overall gross profit margin (as a percentage of total
revenue) was up 6 percentage-points to 33% in the second quarter. Standing
timber gross margin was 58%, compared to 46% in the same period last year,
mainly due to the higher proportion of total sales of trees sold from
high-yield purchased plantations.

    Total capital expenditures in the second quarter of 2007 were $85 million
compared to $47 million last year. We acquired 15,928 hectares of standing
timber during the period, 6% less than last year. Trees acquired were mainly
pine and fir in Hunan and Guangxi province. Re-planting and maintenance costs
were $6 million in the second quarter 2007. Capital invested in our
manufacturing operations was $2 million, mainly for start-up operation in
Hunan province.

    Cash flow from operating activities decreased 37% to $20 million in the
second quarter of 2007 primarily due to a decrease in cash provided by working
capital mainly resulting from an increase in prepayments for purchases of
plantations and logs, and inventories.

    Other

    Change of Auditors

    Ernst & Young LLP ("E&Y") has been retained as auditor, replacing BDO
McCabe Lo Limited ("BDO"). There has been no discovery of any accounting or
other irregularities which prompted the change of auditors. Rather, the change
of auditors is primarily due to Sino-Forest's rapid growth in operations since
the beginning of BDO's engagement. BDO has agreed to work with E&Y to ensure a
smooth transition of the audit engagement. E&Y previously acted as
Sino-Forest's auditor from 2000 until 2004.
    "We look forward to working with E&Y again and continue to provide our
shareholders with high level of compliance and audit reporting," said Allen
Chan, Chairman and CEO of Sino-Forest. "E&Y will be able to provide resources
locally in China and Hong Kong as well as in Canada to ensure compliance with
the evolving requirements of the relevant securities regulators, the Toronto
Stock Exchange and the Canadian Public Accountability Board."

    Outlook
    -------
    We remain focused on creating competitive advantages from our sustainable
forestry management practices. We are creating value on the input side of our
upstream wood fibre operations by improving plantation yield and the quality
of trees harvested, while minimising environmental impacts. We are also
creating value on the output side of our downstream manufacturing by investing
in the research and development of new technologies enabling us to use
small-diameter logs that largely reduce wastage of tree fibre, while improving
usage and the monetary value of small logs.
    Establishment of infrastructure and employing the right people are well
under-way to ensure a successful execution model in Hunan and Yunnan
provinces, where our core forestry base will be located. We anticipate revenue
contributions from Hunan in the latter half of 2007, and from Yunnan in the
first half of 2008.

    Notice of Conference Call
    -------------------------
    Sino-Forest will hold an investor conference call to further discuss its
second quarter 2007 financial results on August 13, 2007 at 8:30 am EST/ 8:30
pm HKT. To participate, please dial +(1) 416 340 2216 for local and
international callers or 866-898-9626 for North America toll-free access.
Alternatively, to join the live webcast and replay in a listen-only mode, log
on to Sino-Forest website under "Earnings Release" or go directly to
http://www.sinoforest.com/earningsreleases.asp.

    About Sino-Forest Corporation

    Sino-Forest Corporation is a leading commercial forestry plantation
operator in China. The Canadian company started its operations in 1994 and was
the first foreign and privately managed operator involved in forest products
in China. Its principal businesses include the ownership and management of
forestry plantation trees and sales of standing timber, logs and wood chips,
and complementary manufacturing of downstream engineered-wood products. The
Corporation's common shares trade 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 recognised term under Canadian GAAP and should not be
    considered as an alternative to net income as an indicator of our
    operating performance or any other measure of performance derived in
    accordance with Canadian GAAP. Because it is not a Canadian GAAP measure,
    gross profit may not be comparable to similar measures presented by other
    companies.

    Note (2) to the Financial Highlights table: EBITDA for any period is
    defined as income from operations for the period after adding back
    depreciation and amortisation and depletion of timber holdings from cost
    of sales, for the period. EBITDA is presented as additional information
    because we believe that it is a useful measure for certain investors to
    determine our operating cash flow and historical ability to meet debt
    service and capital expenditure requirements. EBITDA is not a measure of
    financial performance under Canadian GAAP and should not be considered as
    an alternative to cash flows from operating activities, a measure of
    liquidity or an alternative to net income as indicators of our operating
    performance or any other measures of performance derived in accordance
    with Canadian GAAP.

    No stock exchange or regulatory authority has approved or disapproved of
information contained herein. Certain information included in this news
release is forward-looking and is subject to important risks and
uncertainties. When used in this news release, the words "believe", "intend",
"estimate", "expect", "plan" and similar expressions are intended to identify
forward-looking statements, although not all forward-looking statements
contain such words. These forward-looking statements are based on current
expectations. The results or events predicted in these statements may differ
materially from actual results or events and are no guarantees of future
performance of Sino-Forest. Factors which could cause results or events to
differ from current expectations include, among other things: our ability to
acquire rights to additional standing timber, our ability to meet our expected
plantation yields, the cyclical nature of the forest products industry and
price fluctuation in and the demand and supply of logs, our reliance on joint
venture partners, authorized intermediaries, key customers, suppliers and
third party service providers, our ability to operate our production
facilities on a profitable basis, changes in currency exchange rates and
interest rates, and PRC economic, political and social conditions and
government policy, and stock market volatility, other factors not currently
viewed as material could cause actual results to differ materially from those
described in the forwarding-looking statements. For additional information
with respect to certain of these and other factors, see the reports filed by
Sino-Forest Corporation with applicable Canadian securities administrators.
Sino-Forest Corporation disclaims any intention or obligation to update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise.


    
    SINO-FOREST CORPORATION

    CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
    (Expressed in thousands of U.S. dollars, except for earnings per share
     amounts) (Unaudited)

                                Three months ended          Six months ended
                                           June 30                   June 30
                                 2007         2006         2007         2006
                                    $            $            $            $
    -------------------------------------------------------------------------
    Revenue                   128,764      107,274      248,713      206,138
    Costs and expenses
    Cost of sales              86,636       78,838      173,171      155,296
    Selling, general and
     administration             9,230        5,682       16,309       11,463
    Depreciation and
     amortisation               1,056          929        2,199        1,741
    -------------------------------------------------------------------------
                               96,922       85,449      191,679      168,500
    -------------------------------------------------------------------------
    Income from operations
     before the undernoted     31,842       21,825       57,034       37,638
    Interest expense          (11,171)      (9,180)     (22,285)     (16,801)
    Interest income             3,618        1,458        5,085        2,596
    Exchange gains              1,926        1,744        1,459        3,260
    Amortisation of deferred
     financing costs                -         (485)           -         (850)
    Other income                  319          342          616          674
    -------------------------------------------------------------------------
    Income before income
     taxes                     26,534       15,704       41,909       26,517
    Provision for income
     taxes                     (1,540)      (1,344)      (4,057)      (2,693)
    -------------------------------------------------------------------------
    Net income for the period  24,994       14,360       37,852       23,824
    -------------------------------------------------------------------------

    Earnings per share
    Basic                        0.15         0.10         0.25         0.17
    Diluted                      0.15         0.10         0.24         0.17
    -------------------------------------------------------------------------

    Retained earnings
    Retained earnings,
     beginning of period      437,405      321,458      423,450      311,994
    Cumulative impact of
     accounting changes
     relating to financial
     instruments                    -            -        1,097            -
    Net income for the period  24,994       14,360       37,852       23,824
    -------------------------------------------------------------------------
    Retained earnings, end
     of period                462,399      335,818      462,399      335,818
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
    (Expressed in thousands of U.S. dollars) (Unaudited)

                                Three months ended          Six months ended
                                           June 30                   June 30
                                 2007         2006         2007         2006
                                    $            $            $            $
    -------------------------------------------------------------------------
    Net income for the period  24,994       14,360       37,852       23,824
    Other comprehensive
     income, net of tax:
      Change in fair value of
       derivatives designated
       as cash flow hedges        642            -          328            -
      Losses on derivatives
       designated as cash
       flow hedges transferred
       to net income in the
       current period             640            -        1,212            -
    -------------------------------------------------------------------------
      Changes in gains and
       losses on derivatives
       designated as cash
       flow hedges              1,282            -        1,540            -
      Unrealised gains on
       foreign currency
       translation of
       self-sustaining
       operations              12,855        2,029       22,331        3,540
    -------------------------------------------------------------------------
    Other comprehensive
     income                    14,137        2,029       23,871        3,540
    -------------------------------------------------------------------------
    Comprehensive income       39,131       16,389       61,723       27,364
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    SINO-FOREST CORPORATION

    CONSOLIDATED BALANCE SHEETS
    (Expressed in thousands of U.S. dollars)
                                                                     Audited
                                                      Unaudited        As at
                                                  As at June 30  December 31
                                                           2007         2006
                                                              $            $
    -------------------------------------------------------------------------
    ASSETS
    Current
    Cash and cash equivalents                           449,226      152,887
    Short-term deposits                                  15,455       18,550
    Accounts receivable                                 121,750      125,307
    Inventories                                          26,382       15,178
    Prepaid deposits and other                           42,856       21,687
    -------------------------------------------------------------------------
    Total current assets                                655,669      333,609
    -------------------------------------------------------------------------
    Timber holdings                                     879,530      752,783
    Capital assets, net                                  90,231       87,939
    Other assets                                         24,211       32,924
    -------------------------------------------------------------------------
    Total non-current assets                            993,972      873,646
    -------------------------------------------------------------------------
    Total assets                                      1,649,641    1,207,255
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND SHAREHOLDERS' EQUITY
    Current
    Bank indebtedness                                    69,089       70,958
    Accounts payable and accrued liabilities             84,851       79,517
    Income taxes payable                                  1,105        1,121
    -------------------------------------------------------------------------
    Total current liabilities                           155,045      151,596
    -------------------------------------------------------------------------
    Long-term debts                                     441,073      450,000
    Derivative financial instrument                       9,122            -
    -------------------------------------------------------------------------
    Total non-current liabilities                       450,195      450,000
    -------------------------------------------------------------------------
    Total liabilities                                   605,240      601,596
    -------------------------------------------------------------------------
    Commitments and Contingencies
    Shareholders' equity
    Share capital                                       530,191      143,511
    Contributed surplus                                   3,754        4,726
    Retained earnings                                   462,399      423,450
    Accumulated other comprehensive income               48,057       33,972
    -------------------------------------------------------------------------
    Total shareholders' equity                        1,044,401      605,659
    -------------------------------------------------------------------------
                                                      1,649,641    1,207,255
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    SINO-FOREST CORPORATION

    CONSOLIDATED STATEMENTS OF CASH FLOWS
    (Expressed in thousands of U.S. dollars) (Unaudited)

                                Three months ended          Six months ended
                                           June 30                   June 30
                                 2007         2006         2007         2006
                                    $            $            $            $
    -------------------------------------------------------------------------
    CASH FLOWS FROM
     OPERATING ACTIVITIES
    Net income for the period  24,994       14,360       37,852       23,824
    Add (deduct) items not
     affecting cash
      Depletion of timber
       holdings included in
       cost of sales           29,441       24,808       51,066       50,385
      Depreciation and
       amortisation             1,056          929        2,199        1,741
      Stock-based compensation    474          420          929          792
      Amortisation of deferred
       financing costs              -          485            -          850
      Interest income from
       Mandra                       -            -            -         (300)
      Other                     1,001          (37)       1,684          (75)
    -------------------------------------------------------------------------
                               56,966       40,965       93,730       77,217
    Net change in non-cash
     working capital
     balances                 (36,834)      (8,908)     (24,363)      20,115
    -------------------------------------------------------------------------
    Cash flows from operating
     activities                20,132       32,057       69,367       97,332
    -------------------------------------------------------------------------
    CASH FLOWS USED IN
     INVESTING ACTIVITIES
    Additions to timber
     holdings                 (80,103)     (45,635)    (157,376)    (138,395)
    Additions to capital
     assets                    (1,859)      (1,641)      (2,890)      (6,989)
    Decrease in non-pledged
     short-term deposits        3,113          169        1,352       19,476
    Increase in other assets        -         (500)           -      (10,000)
    -------------------------------------------------------------------------
    Cash flows used in
     investing activities     (78,849)     (47,607)    (158,914)    (135,908)
    -------------------------------------------------------------------------
    CASH FLOWS FROM
     FINANCING ACTIVITIES
    Issuance of shares, net
     of issue expenses        384,779          513      384,779          513
    Increase in long-term
     debts                          -      100,000            -      150,000
    (Decrease) increase in
     bank indebtedness         (3,325)      (1,026)      (2,409)       2,422
    Decrease (increase) in
     pledged short-term
     deposits                   1,057         (142)       2,111       (1,204)
    Increase in deferred
     financing costs                -         (101)           -       (3,001)
    -------------------------------------------------------------------------
    Cash flows from financing
     activities               382,511       99,244      384,481      148,730
    -------------------------------------------------------------------------
    Effect of exchange rate
     changes on cash and
     cash equivalents           1,101          611        1,405          699
    -------------------------------------------------------------------------
    Net increase in cash and
     cash equivalents         324,895       84,305      296,339      110,853
    Cash and cash equivalents,
     beginning of period      124,331      134,966      152,887      108,418
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period            449,226      219,271      449,226      219,271
    -------------------------------------------------------------------------
    Supplemental cash flow
     information
    Cash payment for interest
     charged to income          4,744          802       21,402       15,077
    Interest received           3,406        1,356        4,981        2,194
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    





For further information:

For further information: DAVE HORSELY - Senior Vice President and Chief
Financial Officer, Tel: (905) 281-8889, Email: davehorsley@sinoforest.com;
LOUISA WONG - Senior Manager, Investor Communications & Relations, Tel: +852
2514 2109, Email: louisa-wong@sinoforest.com

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