General
questions
Q1. How do investors find public
disclosure documents such as Prospectuses,
Annual Information Forms, Management
Information/Proxy Circulars and reports on
timber assets by independent forestry
experts?
Q2. What is Sino-Forest’s
strategy for profitable growth?
Q3. How will Sino-Forest create value
for shareholders?
Q4. Why is TRE-T trading
at a relatively low price multiple, while
the corporation is reporting relatively
good financial results?
Q5. Will Sino-Forest have sufficient
cash to fund its planned capital
expenditures?
Q6. Does Sino-Forest pay
dividends to shareholders? If not, when
will it?
Q7.
What is Sino-Forest’s strategy regarding
focusing on plantations versus expanding
its downstream product manufacturing?
Q8. What impacts will continuing
revaluation of China’s currency have on
Sino-Forest’s financial results?
Q9. Does Sino-Forest
provide earnings guidance, and/or analyst
reports?
Q10. When and where is the next annual
meeting?
Q11. Who is Sino-Forest’s independent
public accountant?
Regarding Sino-Forest’s publicly traded
securities
Q12. Who can one contact
regarding registry or transfer of
Sino-Forest shares, or regarding a
change of address, or if share
certificates have been lost or
misplaced?
Q13. How many common
shares of Sino-Forest are outstanding?
Q14. On what stock
exchanges is Sino-Forest listed? What is
its stock symbol? And how can one get a
history of its stock price for specific
dates?
Q15. What are the 18.9
million TRE.S shares? Why does the TSX
Exchange not include them?
Q16. Who are the largest owners of
Sino-Forest shares?
Q17. What is Sino-Forest
CUSIP number?
Q18. What are the
corporate and credit bond ratings of
Sino-Forest’s bonds?
Q19. When and what was
the amount raised at Sino-Forest’s last
equity offering, and what was the use of
proceeds?
Q20. Regarding the
corporation’s USD$300 million bond
offering: why was so much raised; what
investors participated; and where do the
bonds trade publicly?
Q21. Why is Sino-Forest,
with its operations in China and
executive head office in Hong Kong,
listed on the Toronto Stock Exchange?
Q22. Sino-Forest was created as a result of the amalgamation of Mt. Kearsage Minerals Inc., and a numbered Company in 1994. What is the share exchange ratio?
Q23. Does Sino-Forest
have a Direct Stock Purchase Plan?
Regarding operations
Q24. What are
Sino-Forest’s unique strengths that give
it a competitive edge and represent
barriers to entry to its industry?
Q25. Does Sino-Forest own
the land at its plantations?
Q26. Will Sino-Forest
have a sufficient inventory of mature
trees to harvest in the next several
years to sustain earnings per share and
cash flow?
Q27. Why did Sino-Forest
not acquire trees directly in Anhui
Province, instead of loaning money to
Mandra Capital and managing Mandra’s
plantations for a fee, and how will
Sino-Forest benefit from its investment
in Mandra Forestry?
Q28. How and when will
Sino-Forest turn around income losses
related to wood panel manufacturing?
Q29. How many employees
does Sino-Forest have?
General
questions
A1. These documents are
posted on Sino-Forest’s website (under
Investor Relations, Reports) or on
www.sedar.com (click on Company Profiles
then “S? scroll down and click
Sino-Forest Corporation, then
View...documents).
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A2.
Leveraging its many competitive
advantages, Sino-Forest is executing the
following strategies in order to broaden
its market penetration, deliver results
consistently, and increase shareholder
value in the long term:
- focus on acquiring additional
forestry plantation trees and access to
long-term supply of wood fibre in
promising Chinese markets;
- continue to improve the yields at our
plantations by investing in research and
development;
- continue to practice
sustainable forestry management;
- leverage on our manufacturing and
processing facilities to maximize the
usage and value of our wood fibre; and
- further broaden our base of investors,
and enhance our corporate image and
profile.
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A3.Sino-Forest is creating value in the
short term by rapidly augmenting its
supply of wood fibre available for
harvesting, to increase net income and
cash flow per share. In the
medium-to-long term, the corporation has
set a goal of increasing its annual
output from 8 million cubic metres of
wood fibre to 15-20 million cm. We will
re-plant harvested areas with
scientifically improved seedlings,
thereby significantly increasing the
yield of standing timber on the land
when the economics of re-planting become
as attractive as trees acquisition. We
are also increasing public disclosure
and analyst coverage of Sino-Forest in
an effort to increase the price multiple
that the capital market applies to its
projected earnings per share.
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A4. Investors
and analysts have cited many reasons for
this illogical conundrum, including
global capital market, economic and
political conditions and perceptions,
but Sino-Forest generally does not
speculate which factors may be affecting
its share price in the short term.
Instead, the corporation focuses on
executing its strategic plan for growing
sustainable earnings and value per share
over the long term.
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A5. The
corporation CAPEX plan for 2008 is to
use US$700 million for trees
acquisition and $30 million for
manufacturing operatons. By year-end
2007, Sino-Forest generated operating cash
flow of $483 million, and ended
the year with cash & equivalents of $329
million. We have
adequate cash reserves, combined with
cash flow from operations in 2007, to
fund our capital expenditure program,
the largest part of which will entail
negotiating additional plantation tree
acquisitions.
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A6. Sino-Forest
does not pay a dividend, and does not
plan to pay one in the medium term as it
dedicates its cash reserves to growing
its supply of wood fibre and further
stabilizing its earnings.
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A7. Sino-Forest
is mainly focusing its efforts on
growing its wood fibre operations by
building wood fibre inventory to meet
strong market demand. In addition, the
corporation is carefully expanding its
manufacturing facilities with an aim to
maximise the use and value of wood fibre,
and leverage the facilities to lock in
further wood fibre supply.
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A8. Sino-Forest
derives most of its revenues in Chinese
Renminbi and reports in US dollars. If
China’s currency increases in value
relative to the US dollar (i.e. it takes
fewer Renminbi to buy a US dollar), then
the corporation’s revenues, earnings and
asset value will appreciate, and
additionally, the cost of servicing its
USD$300 million bond debt and US$150
million loan would also
decrease.
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A9. Focused on
profitable growth in the long term,
Sino-Forest’s policy is to not provide
earnings guidance. And following
generally accepted disclosure practices;
we do not disseminate investment analyst
reports about Sino-Forest.
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A10.
Sino-Forest’s Annual General Meeting
usually takes place in end of May in
Toronto, Canada, where its corporate
head office, several Directors and many
investors are located. More specific
details about the event are posted on
the corporation’s website at www.sinoforest.com, under Investor
Relations.
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A11.
Sino-Forest’s auditor is Ernst & Young
LLP, which is registered with the
Canadian Public Accountability Board and transactions in accordance
with Canadian Generally Accepted
Accounting Principles (GAAP).
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Regarding Sino-Forest’s publicly traded
securities
A12. Call
Sino-Forest’s Registrar and Transfer
Agent, CIBC Mellon Trust Company in
Toronto, at 416-643-5500 or toll-free
North America 1-800-387-0825.
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A13. As at
March 31, 2008, there were 182.5 million
shares outstanding (TRE: 163,727,361 and TRE.S: 18,865,600).
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A14.
Sino-Forest’s common shares trade on the
Toronto Stock Exchange under the symbol
TRE-T, and a history of their price is
available at www.tsx.com.
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A15. The 18.9
million TRE.S shares are as the TRE
common shares except that they bear a
U.S. restrictive legend. They were
issued by Sino-Forest in connection with
the 2004 public offering to U.S.
purchasers - U.S. securities legislation
required the imposition of the legend on
such shares. The TSE requires that such
shares be monitored separately and
therefore they require the .S suffix.
Otherwise, they have the identical
voting and other rights. So the TSX
shows 18.9 million fewer shares than
Sino-Forest reports in its Financial
Statements.
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A16. Large
mutual funds, other institutional
investors and corporation executives are
among Sino-Forest’s largest
shareholders. For details, please refer
to the corporation’s management
information circular filed on
www.SEDAR.com.
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A17.
Sino-Forest’s CUSIP number is 82934H.
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A18.
Sino-Forest has been assigned a
Ba2/stable outlook from Moody’s and a
BB-/stable rating from Standard and
Poor’s in 2004. On March 27, 2007,
Standard and Poor’s raised our rating to
BB/stable from BB-/positive.
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A19. In May
2004, the corporation raised CAD$103
million (USD$74 million) by issuing 39
million common shares at CAD$2.65/share
in a public offering in Canada and
private placement to international
investors. The Prospectus is available
at www.sedar.com. Proceeds were used
primarily to fund the acquisition of
mature plantation trees.
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A20.
Sino-Forest raised USD$300 million in
August 2004, issuing non-convertible
guaranteed senior notes bearing an
interest rate of 9.125% per annum and
maturing in 2011, primarily to repay
approximately USD$92 million of existing
debt and fund the $200 million
acquisition of mature plantation trees
in Heyuan, Guangdong Province. Many
institutional investors in Asia, United
States and Europe participated in the
offering, and the bonds trade on the
Singapore Securities Exchange. The
Prospectus is also available at
www.sedar.com, filed under Material
document dated August 2004.
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A21. Back in
1994 when Sino-Forest’s founders sought
financing to create a corporation that
would acquire and cultivate plantation
trees, they found the Canadian
investment community to be very
knowledgeable of the forest product
industry and financially supportive of
Sino-Forest’s initial public offering
and listing.
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A22.
Every 10 shares of Mt. Kearsarge were
exchanged for one Class A
Subordinate-Voting Share of Sino-Forest.
To convert Mt. Kearsage shares to
Sino-Forest shares, call Sino-Forest’s
Registrar and Transfer Agent, CIBC
Mellon Trust Company in Toronto at
416-643-5500 or toll-free North America
1-800-387-0825.
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A23.
Sino-Forest does not have a Direct Stock
Purchase Plan at this time.
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Regarding operations
A24. Our
competitive advantages as a leading,
foreign-owned, commercial plantation
operator in the PRC include:
-
access to strategically located
plantations, in favourable climates for
fast-growing trees, near transportation
arteries connected to China’s largest
manufacturing hubs and consumer markets;
-
extensive forestry and management
expertise; e.g. the Gaoyao plantation in
Guangdong Province received China’s
first Forest Stewardship Council
Certification (FSC) for a commercial
plantation;
-
strong research and development
expertise, and systematic application of
silviculture techniques to maximize
annual yield at plantations; and
-
strong brand, reputation and established
relationships with local forestry
bureaus and local communities in the PRC.
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A25.
Sino-Forest typically owns the trees,
but not the land at its plantations as
the majority of plantation land in China
is owned by the State. In order to plant
and cultivate its trees, the corporation
typically secures long-term land use
rights registered with local forestry
bureaus and/or leases land for terms of
30 to 50 years.
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A26. The
corporation is focusing its efforts and
investments on acquiring as many mature
and young trees as possible in order to
harvest in a sustainable manner a volume
of wood each year that will generate
consistent and growing EPS and cash
flow. Sino-Forest’s plantation area
under management has grown 99% from
177,000 hectares in 2000 to 352,000
hectares in 2006. In any given year, the
number of trees that is harvested
typically does not exceed the number of
the trees that come to maturity. And
Sino-Forest is in the process of
acquiring substantially more trees in
the years to come.
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A27. This
investment enables Sino-Forest to access
to a new region and obtain alternative
fibre supply as Mandra principals had
established the essential business
relations with local government
officials in Anhui to kick-start the
operation. The agreements with Mandra
provide Sino-Forest quick access to wood
fibre. Sino-Forest has an exclusive
right to sell to its customers trees
from Mandra plantations, earning a 3%
margin on all trees sold, as well as a
forestry management fee of at least
USD$1 million/year, and collect 8%
interest annually on the USD$15 million
loan to Mandra, which is refundable in
the medium-term future, when Sino-Forest
will also have a right to buy a
controlling interest in Mandra Forestry
and all of its trees.
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A28. The
corporation has been making progress on
its Manufacturing & Other Operations.
The first phase of the engineered-wood
flooring in Suzhou commenced operation
in Q2 2006. The particleboard facility
in Gaoyao is expecting certain parts of
its third line to arrive. We anticipate
the particleboard line to be fully
operational in 2008. The objectives of
establishing these manufacturing
operations are to maximize the usage and
value of wood fibre.
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A29. The
corporation has approximately 2,000
employees on payroll as of December 31,
2007, and engages over
20,000 seasonal workers by third party
service providers.
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Glossary
BDMT (Bone Dry Metric Ton): a measure of
weight for bulk wood chips; one BDMT
weighs one metric ton if all the
moisture content is removed. For
eucalyptus trees, one BDMT is equal to
approximately two cubic meters of round
logs.
CJV (Cooperative Joint Venture):
a Sino-foreign enterprise with
limited liability, whereby local
forestry bureaus provide the land and
Sino-Forest invests in research &
development, plantation development and
provides silviculture expertise. Upon
maturing of standing timber, the local
forestry bureaus obtain 30% of the fibre.
Hectare: a metric unit measurement of
land surface area equal to 10,000 square
meters or 2.471 acres
MAI (Mean Annual Increment): the average
volume of standing timber produced per
year for a forest of known age, in cubic
meters per hectare divided by the age of
the stand.
MDF (medium density board): a very dense
and stable engineered wood product made
from particles of wood bonded together
with a binding material such as glue or
resin and compressed to form a sheet
material, which is used in construction
or the manufacturing of furniture, and
be covered with a veneer.
MU: Imperial Chinese measurement for
agricultural land; 1 hectare equals 15 MU
[One hectare = 10,000 square metre or approximately 2.471 acres = 15 mu]
Planted plantation: those where
Sino-Forest has the rights to own the
trees and use the land under long-term
leases, and typically plants improved
seedlings produced from clones, through CJVs
and WFOEs.
Purchased plantation: those where
Sino-Forest has purchased premature
trees and has the rights to sell them
and to lease the land for replanting
(including the transfer of plantation
land use rights) for periods of 30 to 50
years. The trees are purchased from
authorized agents of the original owners
of trees, which can be either
collectively-owned or privately-owned
tree plantations, and Sino-Forest
manages the growing process of these
trees with minimal capital expenditure.
After the trees reach maturity, the
Corporation either harvests or sells the
trees as standing timber whereby the
trees are expected to be harvested by
the purchasers. Sino-Forest returns the
land to the local forestry bureaus after
harvesting, unless it exercises an
option for the transfer of the
plantation land use rights through
long-term leases of up to 50 years,
subject to negotiation of lease rate and
other conditions.
PRC: People’s Republic of China
WFOE (Wholly Foreign Owned
Enterprise):
an enterprise established in
China with capital provided solely by
foreign investors, whereby Sino-Forest
leases plantation land from local
forestry bureaus or collective owners.
Sino-Forest has 100% operating and
management rights to the planted area
and owns 100% of fibre.
Yield: amount of wood harvested from a
particular type of forest stand by
species, site, stocking, and management
regime at various ages.
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