SINO FOREST CORP ("TRE.A-T;SNOFF-L") - Financial Results For The
4th Quarter And Year Ended Dec 31, 1998
Sino-Forest is pleased to announce net income for the fourth quarter of 1998
of $7.4 million, an increase of 30% compared to net income of $5.7 million for
the fourth quarter of 1997. Fully diluted earnings per share for the fourth
quarter increased 29% to $0.09 (Cdn$0.13) from $0.07 (Cdn$0.10) for the
fourth quarter of 1997. For the year ended December 31, 1998, the Company had net income attributable to shareholders
of $21.4 million, an increase of 40% compared to net income of $15.3 million attained in fiscal 1997. Fully diluted earnings
per share for the year ended December 31, 1998 increased 37% to $0.26 (Cdn$0.39) from $0.19 (Cdn$0.26) for the
year ended December 31, 1997. This increase in earnings for the fourth quarter and for the year ended December 31,
1998 is attributable primarily to the increase in wood chip shipments, increase in principal sales and increase in lumber and
wood products trading.
Revenue for the fourth quarter ended December 31, 1998 increased by 98% to $39.5 million compared to $20.0 million
for the fourth quarter in fiscal 1997. For the year ended December 31, 1998, revenue increased by 122% to $92.7 million
compared to $41.8 million attained in fiscal 1997. The increase in revenue is due primarily to an increase in wood chip
shipments and an increase in sales where the Company acted as principal rather than as an agent. Proforma sales on wood
chip shipments for the year ended December 31, 1998 would have been approximately $160.0 million instead of $92.7
million if the Company had acted as principal on all of its wood chip shipments.
For the fourth quarter ended December 31, 1998, wood chip shipments increased 19% to 597,100 BDMT compared to
501,560 BDMT in the corresponding period in 1997. For the year ended December 31, 1998, wood chip shipments
totalled 1,603,900 BDMT compared to 1,160,560 BDMT shipped in 1997, an increase of approximately 38%. Of the
total wood chips shipped in 1998, 245,500 BDMT were exported to Japan and Taiwan and 1,358,400 BDMT were sold
in the domestic PRC market. Export and domestic shipments for 1997 were 311,300 BDMT and 849,260 BDMT
respectively. For the year ended December 31, 1998, the Company acted as principal on 664,500 BDMT compared to
184,400 BDMT in 1997, an increase of 260%. In 1998, no shipments were recorded from Leizhou EJV as it had ceased
operations in 1997 compared to shipments of 45,000 BDMT recorded in 1997. Export shipments have decreased
approximately 21% from 311,300 BDMT in 1997 to 245,500 BDMT in 1998 as a result of the continuing weak
economy in Japan and the economic downturn in Asia. Demand for wood chips in China remains strong and was the
reason for the significant increase in shipments from 849,260 BDMT in 1997 to 1,358,400 in 1998, an increase of 60%.
A summary of the wood chip shipments for the fourth quarter and year ended December 31, 1998 is set out in the table
below:
Wood Chip Shipments
Fourth quarter and year ended December 31, 1998
[thousands of BDMT]
Agency Principal Total
Market 4th Qtr. 1998 4th Qtr. 1998 4th Qtr. 1998
Export 65,000 245,500 - - 65,000 245,500
Domes-
tic 325,100 693,900 207,000 664,500 532,100 1,358,400
Total 390,100 939,400 207,000 664,500 597,100 1,603,900
During the fourth quarter of 1998, commission income earned from wood chip shipments of 390,100 BDMT made by the
Company's Guangxi joint venture partner amounted to approximately $5.9 million compared to $5.7 million (380,160
BDMT) for the same period in 1997. Sales made on an agency basis will gradually be replaced by sales to be made by
the Company directly on a principal basis. The 41% of principal sales made in 1998 is expected to increase to
approximately 60% of total shipments targeted for 1999.
For the fourth quarter of 1998, revenue from lumber and wood products trading amounted to $5.0 million, of which the
Company earned a profit of approximately $0.64 million, compared to commission income earned on lumber trading of
$0.96 million in the fourth quarter of 1997.
The average wood chip price, net of VAT, in the fourth quarter of 1998 remained at approximately $100 per BDMT
compared to prices recorded in the last three quarters. The Company expects the price of wood chips to improve
moderately in the second half of 1999. "We are very pleased with the fourth quarter and year end results. For twenty
consecutive quarters, our financial performance has met or exceeded expectations," says Allen Chan, Chairman and CEO.
"We have now clearly established our position in China as a leader in the plantation business. In this relatively short period
of time (5 years), we have increased our shipment of wood chips by over 10-fold, from 156,000 BDMT in 1994 to
1,603,900 BDMT in 1998 - a major accomplishment by any standard," says Allen Chan.
The demand for wood chips in the domestic market in 1999 is expected to remain strong despite an economic slowdown
in China due to the Asia's economic turmoil. Paper and board consumption in China continues to increase due to
population growth, increasing literacy rates and the conversion of non-wood pulp to traditional wood pulp. The Company
believes that supply of wood chips in China over the next decade is expected to lag behind the projected strong growth in
demand for wood chips.
The ban on logging of natural forests announced during the year will further reduce timber output in the PRC and will
enhance the Company's competitive ability to supply wood products in the PRC. This measure, taken by the Chinese
government to ban logging of natural forests, is expected to have a profound impact on the domestic supply of timber in
China in the years to come. Sino-Forest as a major plantation operator in China with a strong established timber sourcing
network both domestically and through imports, will be in an advantageous position to be the preferred supplier of wood
as feedstock for both pulp and building material manufacturers in the PRC.
Sino-Forest Corporation through its subsidiaries and joint ventures operates an integrated forest products company which
has rights to manage and operate approximately 603,000 hectares of plantations in southern China for up to 50 years. The
Company's plantation operations include timber harvesting, replanting, maintenance, wood chip processing and marketing
and export operations. The plantations, when fully phased-in, will allow the Company to produce an annual sustainable
yield of over 4 million BDMT of saleable wood chips from its eucalyptus, aspen and pine trees.
The Class A Subordinate-Voting Shares of the Company trade on The Toronto Stock Exchange under the symbol
"TRE.A".
SINO-FOREST CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS [Expressed in thousands of U.S.
dollars]
Year ended
December 31,
1998 1997
$ $
CASH FLOWS FROM OPERATING ACTIVITIES
Net income for the year 21,364 15,297
Add items not affecting cash Reduction in amount due from CJV partners in
exchange for timber holdings
(7,770) (2,762)
Equity in losses of Jiangxi Investments 430 418
Depreciation, amortization and depletion 91 717
Non-controlling interests - 606
14,115 14,276
Net change in non-cash working capital balances 1,202 291
Cash flows from operating activities 15,317 14,567
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of share capital, net 687 2,231
Issuance of long-term debt - 3,710
Cash flows from financing activities 687 5,941
CASH FLOW FROM INVESTING ACTIVITIES
Investment in capital assets (22,880) (28,931)
Cash released from escrow - 11,042
Deposits - (2,250)
Investment in SJXT - (1,037)
Cash flows used in investing activities (22,880) (21,176)
Effect of exchange rate changes on cash 108 (367)
Net decrease in cash and cash equivalents
during the year (6,768) (1,035)
Cash and cash equivalents, beginning of year 5,683 6,718
Cash, cash equivalents and bank indebtedness,
end of year (1,085) 5,683
SINO-FOREST CORPORATION
CONSOLIDATED STATEMENT OF INCOME [Expressed in thousands of U.S.
dollars, except for earnings per share information]
Fourth quarter ended Year ended
December 31 December 31
1998 1997 1998 1997
$ $ $ $
[unaudited]
Revenue 39,472 19,976 92,710 41,783
Costs and expenses
Costs of sales 28,980 10,987 62,675 17,401
Selling, general and
administration 1,576 1,748 5,898 5,068
Depreciation, amortization
and depletion 23 28 91 717
Research and development - 351 - 351
30,579 13,114 68,664 23,537
Income from operations 8,893 6,862 24,046 18,246
Equity in losses of
Jiangxi Investments (120) (93) (430) (418)
Interest income (expense) 2 (2) (9) 64
Other expense - (177) - (140)
Income before income
taxes 8,775 6,590 23,607 17,752
Provision for income
taxes 1,372 931 2,243 1,849
7,403 5,659 21,364 15,903
Non-controlling interests - - - 606
Net income for the period 7,403 5,659 21,364 15,297
Earnings per share
Basic $0.10 $0.09 $0.29 $0.23
Fully diluted $0.09 $0.07 $0.26 $0.19
Weighted average number of outstanding Class A and Class B shares
Basic 76,006,000 69,231,000 74,221,000 65,718,000
Fully diluted 81,306,000 81,756,000 81,260,000 81,631,000
SINO-FOREST CORPORATION
CONSOLIDATED BALANCE SHEET [Expressed in thousands of U.S. dollars]
December 31
1998 1997
$ $
ASSETS Current
Cash 912 5,683
Accounts receivable 2,643 4,037
Other receivables and prepaid
expenses 1,929 2,337
Inventories - 9
Due from PRC CJV partners 11,748 7,634
Total current assets 17,232 19,700
Capital assets, net 78,880 48,320
Deposits 2,250 2,250
Jiangxi Investments 1,070 1,500
SJXT Investment 1,037 1,037
Goodwill, net 32 33
100,501 72,840
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Accounts payable and accrued
liabilities 5,396 4,134
Income taxes payable 4,227 1,984
Bank indebtedness 1,997 -
Current portion of long-term debt 370 -
Total current liabilities 11,990 6,118
Long-term debt 3,340 3,710
Convertible debenture - 3,000
Total liabilities 15,330 12,828
Shareholders' equity
Share capital 32,989 29,302
Retained earnings 52,182 30,818
Cumulative translation adjustment - (108)
Total shareholders' equity 85,171 60,012
100,501 72,840
TEL: (905) 281-8889 Mr. Kee Y.Wong, F.C.A., Executive Vice President FAX: (905) 281-3338 TEL: (852)
2877-0078 Mr. Allen T.Y. Chan, Chairman and CEO FAX: (852) 2877-0062 and Chief Financial Officer
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