Sino-Forest Reports Strong Third Quarter 2009 Results
Third Quarter 2009 Highlights
- Revenue increased 25% for the quarter ("Q3") and year-to-date ("YTD")
- Diluted Earnings Per Share increased 18% (19% YTD)
- Wood volume sales increased 18% in Q3; up 33% or approximately
9 million m(3) YTD
- Sold 1.5 million m(3) of logs from integrated plantation model in Q3;
average price $81/m(3); gross margin $31/m(3)
- Successfully completed note exchange offer with approximately 71% of
the outstanding $300 million 9.125% guaranteed senior notes due 2011
tendered
(US$ millions, Three months ended Nine months ended
except margins September 30 September 30
and per share 2009 2008 Change 2009 2008 Change
amounts) $ $ % $ $ %
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Revenue 367.0 293.7 24.9 768.6 614.2 25.1
Gross Profit(1) 144.3 128.6 12.2 293.6 244.0 20.3
Gross Profit Margin 39.3 43.8 (4.5pts) 38.2 39.7 (1.5pts)
EBITDA(2) 282.0 220.9 27.6 542.3 403.0 34.5
Net Income 105.6 75.2 40.5 173.7 133.1 30.5
Diluted Earnings Per
Share 0.47 0.40 18.2 0.86 0.72 19.4
Cash Flow From
Operating
Activities 234.2 136.6 71.4 558.5 272.2 105.2
See notes (1) and (2) at end of this news release.
Sino-Forest Chairman and CEO
Business Segment Highlights
Total revenue increased 24.9% to
Wood Fibre Operations
3 months ended 3 months ended
Sep 30, 2009 Sep 30, 2008
Sales per Total Sales per Total
Plantation Model Hectares hectare revenue Hectares hectare revenue
$ $'000 $ $'000
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Purchased
plantations 18,258 9,647 176,142 26,968 6,733 181,565
Integrated
plantations 10,771 11,040 118,912 6,170 9,844 60,738
Planted plantations 423 1,837 777 1,284 2,284 2,933
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Total 29,452 10,045 295,831 34,422 7,124 245,236
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Plantation fibre revenue increased 20.6% to
The average yield of fibre sold from our purchased and planted plantations in Q3 2009 was 150 m(3) per hectare compared to 106 m(3) per hectare in the same period last year, and generated an average selling price of approximately
Plantation fibre sales comprised 80.6% of total revenue in Q3 2009, compared to 83.5% in the same period in 2008.
Other Fibre
Revenue from sales of imported wood products increased 84.5%, from
Manufacturing and Other Operations
Revenue from this business segment decreased 28.9% from
Gross Profit
Gross profit increased 12.2%, from
Wood Fibre Operations
Gross profit margin from sales from our purchased and planted plantations decreased from 54.2% in Q3 2008 to 52.8% in the same period in 2009, mainly due to the sales of plantation trees with a higher fibre cost per m(3) compared to the same period in 2008. The gross profit margin for sales of logs from our integrated plantation model was 38.3% or
Other Fibre
Gross profit margin from sales of imported wood products increased from 4.1% in Q3 2008 to 6.8% in the same period in 2009. In addition, gross profit margin from sales of wood logs increased from 14.6% in Q3 2008 to 20.7% in the same period this year.
Manufacturing and Other Operations
Gross profit margin decreased from 9.2% in Q3 2008 to 8.9% in the same period in 2009.
Selling, General and Administration Expenses
Our SG&A expenses increased 3.7%, from
Net Income
As a result of higher fibre volume sold and higher selling prices, net income for the period increased 40.5%, from
Cash Flows from Operating Activities of Continuing Operations
Net cash provided from operating activities increased from
Capital Expenditures
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3 months ended September 30 9 months ended September 30
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2009 2008 2009 2008
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Hec- Hec- Hec- Hec-
tares $ in M tares $ in M tares $ in M tares $ in M
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Tree
acqui-
sition 61,981 279.7 21,661 186.2 179,072 677.8 63,532 375.1
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Re-planting
& maintenance
of plantations 14.5 6.8 28.2 15.4
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Panel
manufacturing
and others 3.0 6.6 10.7 25.1
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297.2 199.6 716.8 415.6
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During the third quarter of 2009, a total of
Year-to-date 2009, approximately 7,100 hectares of plantations has been planted in the provinces of Hunan and Guangxi.
Total capital expenditures in 2009 are expected to be approximately
Outlook
Over the past few years, we have been increasing our efforts in research and development to further improve the productive yield of our fast-growing eucalyptus species. We have achieved an average standing timber yield of between 120 m(3) and 150 m(3) per hectare for a six-year growing cycle of our eucalyptus trees, which are expected to be ready for harvest in 2010. However, in certain regions, our currently growing eucalyptus trees are expected to have yield of approximately 250 m(3) per hectare at maturity.
Given the increase in demand and pricing of fibre in the third quarter 2009, we are optimistic that log prices will return to 2008 levels by the end of this year. However, we continuously monitor market prices across
As indicated by the Chinese government at a recent UN climate change summit.
Notice of Conference Call
Sino-Forest will hold an investor conference call to further discuss its third quarter 2009 operating and financial results on
About Sino-Forest Corporation
Sino-Forest Corporation is a leading commercial forest plantation operator in
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 Nine months ended
September 30, September 30,
2009 2008 2009 2008
$ $ $ $
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Revenue 366,962 293,696 768,615 614,172
Costs and expenses
Cost of sales 222,631 165,095 475,034 370,188
Selling, general and
administration 13,453 12,973 46,021 33,236
Depreciation and amortization 1,160 846 3,450 2,250
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237,244 178,914 524,505 405,674
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Income from operations before
the undernoted 129,718 114,782 244,110 208,498
Interest expense (17,323) (15,079) (51,154) (35,307)
Interest income 2,580 3,705 6,760 8,970
Exchange losses (217) (493) (580) (3,606)
Gain (loss) on changes in fair
value of financial instruments 1,938 2,229 3,545 (1,112)
Other income - 446 1,272 1,485
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Income before income taxes 116,696 105,590 203,953 178,928
Provision for income taxes (10,199) (10,353) (22,515) (19,872)
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Net income from continuing
operations 106,497 95,237 181,438 159,056
Net loss from discontinued
operations (880) (20,062) (7,767) (25,953)
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Net income for the period 105,617 75,175 173,671 133,103
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Earnings per share
Basic 0.48 0.41 0.87 0.73
Diluted 0.47 0.40 0.86 0.72
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Earnings per share from
continuing operations
Basic 0.48 0.52 0.91 0.87
Diluted 0.48 0.50 0.90 0.86
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Loss per share from
discontinued operations
Basic (0.00) (0.11) (0.04) (0.14)
Diluted (0.00) (0.10) (0.04) (0.14)
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Retained earnings
Retained earnings, beginning
of period 837,611 598,892 769,557 540,964
Net income for the period 105,617 75,175 173,671 133,103
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Retained earnings, end of
period 943,228 674,067 943,228 674,067
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Expressed in thousands of United States dollars) (Unaudited)
Three months ended Nine months ended
September 30, September 30,
2009 2008 2009 2008
$ $ $ $
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Net income for the period 105,617 75,175 173,671 133,103
Other comprehensive income:
Unrealized gains (losses)
on financial assets
designated as
available-for-sale, net of
tax of nil 6,650 (423) 10,955 (1,471)
Unrealized gains on foreign
currency translation of
self-sustaining operations 1,096 10,784 1,590 110,267
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Other comprehensive income 7,746 10,361 12,545 108,796
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Comprehensive income 113,363 85,536 186,216 241,899
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CONSOLIDATED BALANCE SHEETS
(Expressed in thousands of United States dollars) (Unaudited)
As at As at
September December
30, 2009 31, 2008
$ $
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ASSETS
Current
Cash and cash equivalents 565,200 441,171
Short-term deposits 51,323 45,784
Accounts receivable 167,571 225,753
Inventories 41,800 43,200
Prepaid expenses and other 28,252 21,768
Convertible bonds 31,919 2,659
Assets of discontinued operations 3,205 31,122
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Total current assets 889,270 811,457
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Timber holdings 2,065,752 1,653,306
Capital assets, net 70,628 63,704
Other assets 105,236 75,457
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3,130,886 2,603,924
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Bank indebtedness 71,298 67,188
Accounts payable and accrued liabilities 173,887 179,903
Income taxes payable 6,041 6,383
Current portion of long-term debt 37,500 -
Liabilities of discontinued operations 33,646 32,004
Derivative financial instrument - 5,214
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Total current liabilities 322,372 290,692
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Long-term debt 674,383 714,468
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Total liabilities 996,755 1,005,160
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Commitments and Contingencies
Shareholders' equity
Equity portion of convertible senior notes 70,462 70,462
Share capital 884,968 539,315
Contributed surplus 11,097 7,599
Accumulated other comprehensive income 224,376 211,831
Retained earnings 943,228 769,557
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Total shareholders' equity 2,134,131 1,598,764
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3,130,886 2,603,924
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in thousands of United States dollars) (Unaudited)
Three months ended Nine months ended
September 30, September 30,
2009 2008 2009 2008
$ $ $ $
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CASH FLOWS FROM OPERATING
ACTIVITIES
Net income for the period 105,617 75,175 173,671 133,103
Net loss from discontinued
operations 880 20,062 7,767 25,953
Add (deduct) items not
affecting cash
Depletion of timber holdings
included in cost of sales 151,079 105,266 294,716 192,301
Depreciation and amortization 1,160 846 3,450 2,250
Accretion of convertible
senior notes 3,354 2,214 9,764 2,214
Stock-based compensation 1,173 1,019 3,498 3,195
(Gain) loss on changes in fair
value of financial
instruments (1,937) (2,229) (3,545) 1,112
Unrealized exchange losses
(gains) 193 (483) 196 3,809
Interest income from Mandra (300) (300) (900) (900)
Other (747) 339 (191) 1,760
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260,472 201,909 488,426 364,797
Net change in non-cash working
capital balances (26,308) (65,274) 70,071 (92,608)
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Cash flows from operating
activities of continuing
operations 234,164 136,635 558,497 272,189
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Cash flows from (used in)
operating activities of
discontinued operations 232 506 (2,342) (2,952)
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CASH FLOWS USED IN INVESTING
ACTIVITIES
Additions to timber holdings (303,930) (190,118) (729,703) (389,121)
Increase in other assets (14,457) (1,274) (20,065) (24,373)
Additions to capital assets (2,932) (6,475) (8,805) (24,617)
(Increase) decrease in
non-pledged short-term
deposits (5,122) 7,848 (6,600) (2,505)
Business acquisition - - - (1,928)
Acquisition of convertible bonds - - (200) -
Proceeds from disposal of
capital assets - 2 111 3
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Cash flows used in investing
activities (326,441) (190,017) (765,262) (442,541)
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Cash flows from (used in)
investing activities of
discontinued operations 14,981 (112) 24,120 (470)
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CASH FLOWS (USED IN) FROM
FINANCING ACTIVITIES
Payment on deferred financing
costs (14,027) (9,135) (14,027) (9,135)
Payment on derivative
financial instrument (2,890) (2,819) (5,781) (4,919)
Increase in bank indebtedness 1,835 13,527 3,860 12,223
(Increase) decrease in pledged
short-term deposits (213) 293 1,089 (2,426)
Issuance of shares, net of
issue costs - 1,302 323,947 1,591
Increase in long-term debt - 345,000 - 345,000
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Cash flows (used in) from
financing activities (15,295) 348,168 309,088 342,334
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Cash flows used in financing
activities of discontinued
operations - (5) - (458)
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Effect of exchange rate changes
on cash and cash equivalents 21 (278) (72) 2,218
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Net (decrease) increase in cash
and cash equivalents (92,338) 294,897 124,029 170,320
Cash and cash equivalents,
beginning of period 657,538 204,113 441,171 328,690
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Cash and cash equivalents,
end of period 565,200 499,010 565,200 499,010
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Supplemental cash flow
information
Cash payment for interest
charged to income 22,783 15,451 50,047 35,793
Interest received 646 2,811 1,833 6,828
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For further information: DAVE HORSLEY, Senior Vice President and Chief Financial Officer, Tel: (905) 281-8889, Email: [email protected]; LOUISA WONG, Senior Manager, Investor Communications & Relations, Tel: +852 2514 2109, Email: [email protected]
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