-- Second Quarter 2010 revenues increased 1.9% year-over-year to $21.1 million, up from $20.7 million in second quarter 2009
-- Second Quarter 2010 net income increased 18.1% year-over-year to $4.6 million, up from $3.9 million in second quarter 2009
Aug. 13, 2010 (PR Newswire) --
XI'AN, China -- China Natural Gas, Inc. ("China Natural Gas" or the "Company") (Nasdaq: CHNG), a leading provider of compressed natural gas (CNG) for vehicular fuel and pipeline natural gas for industrial, commercial and residential use in Xi'an, China, today announced its financial results for the second fiscal quarter ended June 30, 2010.
Qinan Ji, Chairman and CEO of China Natural Gas, Inc. commented: "We are pleased to share the results of our second quarter, as we believe that they demonstrate continued progress toward our geographic growth and forward integration objectives. We invested significant resources during the second quarter toward the completion of our LNG facility in Shaanxi province, for which we held the opening ignition ceremony on June 30, 2010. We completed four new fueling station acquisitions in the second quarter, increasing the size of our network to 40 stations. Our successful acquisition of a fully operational CNG compression station in Hanchuan City will also drive top- and bottom-line growth in the coming quarters, especially as a step stone for our future expansion in Hubei Province. Our outlook for the second half of the year is promising as we continue to grow our business, and we look forward to sharing any future developments as they materialize."
Second Quarter 2010 Financial and Operating Results
Revenues in the second quarter of 2010 increased 1.9% to $21.1 million from $20.7 million in the second quarter of 2009, driven by sales from 5 new fueling stations added since the third quarter of 2009, as well as an increase in the number of residential and commercial pipeline customers to 112,343 as of June 30, 2010 from 103,343 as of June 30, 2009. Natural gas sales grew 3.2% year-over-year to $16.2 million, up from $15.7 million in the second quarter of 2009. Gasoline revenues in the second quarter of 2010 increased to $2.03 million, up 24.5% from $1.63 million in the prior year's period, which was mainly attributable to the increase of international oil prices. Installation and services revenue decreased 15.0% year-over-year to $2.88 million from $3.39 million in the year-ago period. In the second quarter of 2010, sales of natural gas, gasoline, and installation and other services contributed 76.7%, 9.6%, and 13.6% of total revenues, respectively.
Gross profit in the second quarter of 2010 decreased 6.4% to $9.6 million, from $10.3 million in the prior year's same period. Gross margin in the second quarter of 2010 was 45.5%, compared to 49.6% a year ago. Gross profit and gross margin decreased primarily due to increased procurement costs in Henan Province, a main area of operations.
Operating income in the second quarter of 2010 was $4.7 million, a decrease of 31.3% year-over-year from $6.8 million in the second quarter of 2009. The change was primarily due to a $1.5 million increase in operating expenses to $5.0 million during the second quarter in 2010, versus $3.5 million in the same period in 2009.
Income tax expense was $973,611 for an effective tax rate of 18.1%, as compared to an effective tax rate of 21.3% in the second quarter of 2009.
Net income in the second quarter of 2010 increased 18.1% to $4.6 million, from $3.9 million, in the second quarter of 2009. Net margin increased to 21.6% during the three months ended June 30, 2010 from 18.6% during the three months ended June 30, 2009. EPS decreased to $0.21 per diluted share, down 19.2% from $0.26 per diluted share in the second quarter of 2009.
As of June 30, 2010, the Company had $42.6 million in cash and cash equivalents , compared to $48.2 million in cash and cash equivalents at December 31, 2009. The decrease in cash and cash equivalents was primarily attributable to the construction of the LNG plant, additions of fueling stations, and market development initiatives in Henan and Hubei Province.
Net cash provided by operating activities was $10.9 million for the six months ended June 30, 2010, compared to net cash provided by operations of $14.4 million for the six months ended June 30, 2009. The primary reason for the change was due to lower operating income and an increase in working capital of $596,743.
Business Developments and Outlook
On July 1, 2010, the Company announced the commencement of test run of its Jingbian liquefied natural gas (LNG) plant, marked by an ignition ceremony. The Company plans to begin commercial production within the second half of this year. The plant's completion will also serve as the precursor to the Company's forward integration strategy, which involves the potential development of its own network of LNG fueling stations.
On July 8, 2010, the Company announced that it had successfully acquired a compressed natural gas (CNG) compressor station in Hanchuan City, China. The station currently has sufficient capacity to process 80,000 to 100,000 cubic meters of natural gas daily and is centrally located near rail lines and arterial roadways, which should reduce transportation costs and improve shipping efficiency. Management foresees the compressor station servicing the Company's future expansion in Hubei province.
On August 6, China Natural Gas announced that a ship powered by LNG and modified by the Company successfully completed its test navigation in Wuhan on August 3rd, 2010. The historic event is the first time an LNG-powered ship has navigated in China's domestic waterways, demonstrating that LNG can be used both in cars and ships as a transportation fuel. The Company succeeded in fueling a tugboat weighing over 300 tons with LNG for Wuhan Ferry Company. The ship now runs on a fuel formula of 30% diesel and 70% natural gas, representing significant energy and cost savings. CHNG is also planning to apply for related ship modification patents and intends to pursue additional applications for the technology.
Following a meeting in early July by the Chinese State Council regarding the economic development of western China, the Company announced that it will continue to benefit from a preferential 15% corporate income tax rate for the next 10 years. The income tax policy, as well as a transition from a volume-based to a price-based resource tax on oil and natural gas, is part of the State Council's strategy to spur economic growth in underdeveloped parts of western China.
Conference Call
Management will hold a conference call on Monday, August 16, 2010 at 8:30 a.m. ET (5:30 a.m. Pacific) to discuss these second quarter results.
To participate in the call please dial (877) 941-2068, or 480-629-9712 for international calls, approximately 10 minutes prior to the scheduled start time. Interested parties can also listen via a live Internet webcast, which can be found at the Company's website at http://www.naturalgaschina.com .
A replay of the call will be available for two weeks from 11:30 a.m. on August 16, 2010, EDT until 11:59 p.m. EDT on August 30, 2010. The number for the replay is (877) 870-5176, or (858) 384-5517 for international calls; the pin number for the replay is 4344157. In addition, a recording of the call will be available via the company's website at http://www.naturalgaschina.com for one year.
About China Natural Gas, Inc.
China Natural Gas transports and sells natural gas to vehicular fueling terminals, as well as commercial, industrial and residential customers through its distribution networks in China's Shaanxi and Henan Provinces. The Company owns approximately 120 km of high-pressure pipelines and operates 28 CNG fueling stations in Shaanxi Province and 12 CNG fueling stations in Henan Province. China Natural Gas' four primary business lines include: (1) the distribution and sale of CNG through Company-owned CNG fueling stations for hybrid (natural gas/gasoline) powered vehicles; (2) the installation, distribution and sale of piped natural gas to residential, commercial and industrial customers through Company-owned pipelines; (3) the distribution and sale of gasoline through Company-owned CNG fueling stations for hybrid (natural gas/gasoline) powered vehicles; and (4) the conversion of gasoline-fueled vehicles to hybrid (natural gas/gasoline) powered vehicles through its auto conversion division.
Forward-Looking Statements
This press release includes statements that may constitute forward-looking statements made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar statements. For example, statements about the future plans and goals of the JV with CNPC and its prospects are forward looking and subject to risks. China Natural Gas, Inc. may also make written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission on forms 10-K, 10-Q and 8-K, in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to fourth parties. Statements that are not historical facts, including statements about the Company's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. Potential risks and uncertainties include, but are not limited to, risks outlined in the Company's filings with the U.S. Securities and Exchange Commission, including its registration statements on Forms S-1 and S-3, in each case as amended. The Company does not undertake any obligation to update any forward-looking statement, except as required under applicable law.
This release is not an offer of securities for sale in the United States. Securities may not be offered or sold in the United States absent registration or an exemption from registration. Any public offering of securities to be made in the United States will be made by means of a prospectus that may be obtained from the issuer or selling security holder and that will contain detailed information about the company and management, as well as financial statements.
CHINA NATURAL GAS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2010 AND DECEMBER 31, 2009
June 30,
December, 31
2010
2009
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash & cash equivalents
$
42,606,410
$
48,177,794
Accounts receivable, net of allowance for doubtful
accounts of $206,514 and $163,280 as of June 30,
2010 and December 31, 2009, respectively
1,174,673
1,289,116
Other receivables
36,942
709,741
Other receivable - employee advances
303,887
338,689
Inventories
842,259
841,837
Advances to suppliers
1,385,058
596,868
Prepaid expense and other current assets
3,769,977
1,076,915
Loans receivable
-
293,400
Total current assets
50,119,206
53,324,360
INVESTMENT IN UNCONSOLIDATED JOINT VENTURES
1,467,000
1,467,000
PROPERTY AND EQUIPMENT, NET
80,342,000
72,713,012
CONSTRUCTION IN PROGRESS
78,363,718
52,918,236
DEFERRED FINANCING COSTS
1,132,082
1,336,998
OTHER ASSETS
17,262,417
15,854,910
TOTAL ASSETS
$
228,686,423
$
197,614,516
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities
$
3,550,860
$
2,081,261
Other payables
96,412
80,788
Unearned revenue
2,282,024
1,813,641
Accrued interest
706,065
786,052
Taxes payable
2,051,374
1,901,577
Notes payable, net of discount $11,135,111 and $0 as
of June 30, 2010 and December 31, 2009, respectively
28,864,889
-
Redeemable liabilities-warrants
17,500,000
-
Total current liabilities
55,051,624
6,663,319
LONG TERM LIABILITIES:
Notes payable, net of discount $0 and $12,707,713 as of
June 30, 2010 and December 31, 2009, respectively
-
27,292,287
Derivative liabilities - warrants
987,455
19,545,638
Long term debt
17,676,000
-
Total long term liabilities
18,663,455
46,837,925
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $0.0001 per share; 5,000,000 shares
authorized; none issued
-
-
Common stock, $0.0001 per share; 45,000,000 shares
authorized, 21,321,904 shares issued and outstanding
at June 30, 2010 and December 31, 2009
2,132
2,118
Additional paid-in capital
81,394,533
79,851,251
Cumulative other comprehensive gain
9,473,023
8,714,019
Statutory reserves
6,925,689
5,962,695
Retained earnings
57,175,967
49,583,189
Total stockholders' equity
154,971,344
144,113,272
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
228,686,423
$
197,614,516
CHINA NATURAL GAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Unaudited)
Three Months Ended June 30,
Six Months Ended June 30,
2010
2009
2010
2009
Revenues
Natural gas revenue
$
16,221,003
$
15,720,679
$
31,704,632
$
30,686,498
Gasoline revenue
2,033,840
1,633,016
3,502,656
2,807,414
Installation and others
2,880,756
3,388,825
5,295,134
5,776,274
Total revenues
21,135,599
20,742,520
40,502,422
39,270,186
Cost of revenues
Natural gas cost
8,357,990
7,490,518
16,222,644
14,237,447
Gasoline cost
1,910,294
1,529,752
3,277,572
2,659,809
Installation and others
1,251,783
1,444,060
2,291,706
2,461,088
Total cost of revenues
11,520,067
10,464,330
21,791,922
19,358,344
Gross profit
9,615,532
10,278,190
18,710,500
19,911,842
Operating expenses
Selling expenses
3,054,992
2,596,784
5,946,782
5,177,609
General and administrative
expenses
1,913,866
917,354
3,731,522
2,342,678
Total operating expenses
4,968,858
3,514,138
9,678,304
7,520,287
Income from operations
4,646,674
6,764,052
9,032,196
12,391,555
Non-operating income (expense):
Interest income
260,021
7,784
349,387
16,692
Interest expense
-
(388,618)
-
(970,110)
Other income (expense), net
(3,031)
(20,926)
43,538
(23,229)
Change in fair value of warrants
665,115
(1,312,834)
1,058,183
(1,115,783)
Foreign currency exchange loss
(34,665)
(19)
(42,775)
(50,807)
Total non-operating income
(expense)
887,440
(1,714,613)
1,408,333
(2,143,237)
Income before income tax
5,534,114
5,049,439
10,440,529
10,248,318
Provision for income tax
973,611
1,186,683
1,884,756
2,183,939
Net income
4,560,503
3,862,756
8,555,773
8,064,379
Other comprehensive income
Foreign currency translation
gain (loss)
797,858
(2,997)
759,004
(155,112)
Comprehensive income
$
5,358,361
$
3,859,759
$
9,314,777
$
7,909,267
Weighted average shares outstanding
Basic
21,246,771
14,600,154
21,215,337
14,600,154
Diluted
21,582,662
14,726,647
21,619,989
14,600,154
Earnings per share
Basic
$
0.21
$
0.26
$
0.40
$
0.55
Diluted
$
0.21
$
0.26
$
0.40
$
0.55
CHINA NATURAL GAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Unaudited)
Six Months Ended June 30,
2010
2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
$ 8,555,773
$ 8,064,379
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization
3,070,705
2,782,209
Loss on disposal of equipment
-
21,370
Provision for bad debt
42,390
-
Amortization of discount on senior notes
-
217,196
Amortization of financing costs
-
52,435
Stock based compensation
867,096
100,758
Change in fair value of warrants
(1,058,183)
1,115,783
Change in assets and liabilities:
Accounts receivable
76,830
(74,409)
Other receivable
658,742
(69,120)
Other receivable - employee advances
50,142
179,083
Inventories
3,008
(487,908)
Advances to suppliers
(782,495)
(268,922)
Prepaid expense and other current assets
(2,594,001)
157,372
Accounts payable and accrued liabilities
1,455,262
822,997
Other payables
15,266
73,210
Unearned revenue
459,057
1,026,693
Accrued interest
(79,987)
376,664
Taxes payable
141,433
306,975
Net cash provided by operating activities
10,881,038
14,396,765
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of equipment
-
41,305
Repayment from loan to a third party
293,380
-
Purchase of property and equipment
(6,260,885)
(21,033)
Additions to construction in progress
(14,317,621)
(10,372,858)
Return of acquisition deposit
1,613,590
449,910
Prepayment for long term assets
(6,520,371)
(110,836)
Payment for acquisition deposits
(3,637,912)
Payment for refundable security deposits
-
Payment for intangible assets
(4,869,242)
(66,971)
Payment for land use rights
(1,147,360)
(463,870)
Net cash used in investing activities
(34,846,421)
(10,544,353)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long term loan
17,602,800
-
Stock issued from exercise of stock options
676,201
-
Net cash provided by financing activities
18,279,001
-
Effect of exchange rate changes on cash and cash equivalents
114,998
(5,619)
NET (DECREASE) INCREASE IN CASH & CASH EQUIVALENTS
(5,571,384)
3,846,793
CASH & CASH EQUIVALENTS, BEGINNING OF PERIOD
48,177,794
5,854,383
CASH & CASH EQUIVALENTS, END OF PERIOD
$ 42,606,410
$ 9,701,176
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid
$ 1,288,328
$ 237,641
Income taxes paid
$ 2,030,575
$ 1,934,887
Non-cash transactions for investing and financing activities:
Construction in progress transferred to property and
equipment
$ 4,107,320
$ -
Prepayment on long term assets transferred to construction
in process
1,678,940
Capitalized interest - amortization of discount of notes
payable and issuance cost
$ 1,777,516
$ 1,773,594
For more information, please contact:
China Natural Gas Inc.
Jacky Shi
IR Director
Tel: +86-29-8832-3325 x922
Cell: +86-139-9287-9998
Email: yjshi@naturalgaschina.com
Investor Relations:
Alexander Nachman
RedChip Companies, Inc.
Tel: +1-800-733-2447 x118
Email: alex@redchip.com
Web: http://www.RedChip.com |
