Migao Reports Fiscal 2013 First Quarter Financial Results

 

Migao reported revenues of $36.7 million for the first quarter ended June 30, 2012 as compared to revenues of $100.5 million for the three-month period ended June 30, 2011. For the quarter, the Company reported a net loss of $3.9 million or ($0.07) per basic share as compared to net income of $7.8 million or $0.15 per basic share. The decline in revenue is attributable to continued weakness in the market for hydrochloric acid that directly and indirectly negatively impacted revenue from its co-product, potassium sulphate. Revenue was further reduced as a result of repair and maintenance shutdowns across all facilities. Also impacting revenue on a comparative basis is lower sales of potassium chloride. 

 

The decrease in net income was primarily a result of lower gross profit margin related to the decreased revenue volume, slower than anticipated start-up of new production facilities, and increased legal and audit costs.

 

The Company is studying a variety of different applications for HCl to resolve the ongoing impact to operations from the market conditions for Migao's current HCl applications.

The Board of Directors of Migao Corporation declared a quarterly cash dividend of $0.015 for each common share, payable on September 13, 2012 to shareholders of record on August 30, 2012. The dividends are eligible pursuant to the Income Tax Act (Canada) and any similar provincial legislation pertaining to eligible dividends.

 

SUMMARY FINANCIAL STATEMENTS

"We continue to operate in a climate of challenging economic conditions," said Mr. Liu Guocai, CEO of Migao. "We are expecting improvement in our markets as well as from our efforts to offset the drag from the hydrochloric acid market. Pricing of hydrochloric acid in northeastern China is expected to improve in the next few months, which should have a positive impact on our revenue and margin for both hydrochloric acid and potassium sulphate products. Upcoming price and volume negotiations with recurring major customers are expected to result in improved production levels from the first quarter's performance."

Migao's gross profit margin was 8.9% of revenue, compared to 17.1% in the same period a year ago. The decrease is a result of reduced production volume, the ongoing impact of reduced selling prices for hydrochloric acid, and slower than anticipated start-up of new production capacity.

Migao's current annual production capacity is 620,000 of combined potassium nitrate, potassium sulphate and specialty compound fertilizers. An additional 100,000 tonnes per year production capacity of specialty compound fertilizers is to be built if market demand continues to grow and the Company is successful in attracting new crop customers. Beginning earlier in the year, several new crop customers were introduced to Migao's specialty compound fertilizers with encouraging results and negotiations to date.

At the end of the period, the Company had $39.0 million (77,544 tonnes) of potassium chloride inventory with an average delivered price of $502 per tonne, of which 58,205 tonnes were on hand with the reminder being in transit. In addition, during the quarter, the Company sold 14,940 tonnes of potassium nitrate, 13,324 tonnes of potassium sulphate, 2,899 tonnes of compound fertilizer, 22,254 tonnes of potassium chloride, and at the end of the period, the Company had $24.0 million (66,651 tonnes) of finished goods inventory on hand, including co-products.

At June 30, 2012, Migao reported cash and restricted cash of $82.5 million and working capital of $204.3 million.