3Q09 Revenue Increases 9.4% YoY to $20.1 Million -- 3Q09 Gross Profit Increases 2.4% YoY to $9.7 Million -- 3Q09 Cash Balance Increases Sequentially by $46.2 Million to $55.9 Million -- Reaffirm FY09 Revenue and EPS Forecast -
NEW YORK, Nov. 10, 2009 (PRNewswire-Asia) -- 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 third fiscal quarter, ended September 30, 2009.
Third Quarter 2009 Results
Revenue in the third quarter of 2009 increased 9.4% to $20.1 million from $18.4 million in the third quarter of 2008, driven by additional fueling stations and higher residential and commercial pipeline customers. Sales of natural gas grew 0.7% YoY to $15.5 million, from $15.4 million in the third quarter of 2008. Gasoline revenue in the third quarter of 2009 increased 37.5% to $1.6 million, from $1.2 million in the prior year's period. Installation and services revenue grew 63.4% YoY to $3.0 million, from $1.9 million a year ago. In the third quarter of 2009, sales of natural gas, gasoline, and installation and other services contributed 76.8%, 8.1%, and 15.1% of total revenue, respectively.
Gross profit in the third quarter of 2009 expanded 2.4% to $9.7 million, from $9.5 million in the prior year's same period, driven by the increased sales volume of natural gas and increased revenue from installation business. Gross margin in the third quarter of 2009 was 48.3%, compared to 51.6% a year ago, mainly due to higher procurement costs of natural gas in Henan.
Operating income in the third quarter of 2009 was $5.9 million, a decrease of 8.4% YoY, from $6.4 million in the prior year's period. Meanwhile, operating expenses in the third quarter of 2009 increased by approximately $0.7 million to $3.8 million, versus $3.1 million in the prior year's period, mainly due to additional expenses related to the acquisition of Lingbao Natural Gas, Co. and the addition of 3 new fueling stations added since the third quarter of 2009. Consequently, third quarter 2009 operating margin was 29.3%, compared to 34.9% for the same period of last year.
During the quarter, the Company recognized $0.4 million non-cash expense from an estimated change in the fair value of warrants, versus zero in the third quarter of 2008.
Income tax expense was $1.0 million for an effective tax rate of 17.7%, as compared to an effective tax rate of 16.8% in the third quarter of 2008. Net income in the third quarter of 2009 decreased 9.5% to $4.6 million, or $0.29 per diluted share, from$5.1 million, or $0.35 per diluted share, in the third quarter of 2008.
Excluding the impact of the non-cash expenses (see "About Non-GAAP Financial Measures" toward the end of this release), adjusted net income was 5.1 million, versus $5.3 million in the third quarter of 2008. For the third quarter of 2009, adjusted earnings per diluted share was $0.32, versus $0.36 per diluted share in the third quarter of 2008.
Mr. Qinan Ji, Chairman and CEO of China Natural Gas, commented, "We are satisfied with our third quarter's steady growth and profitability. During this quarter, we increased our number of pipeline customers to 118,973, and we expanded the number of our CNG gas stations to 36. We also successfully completed a secondary offering and were encouraged by the strong interest and solid participation by new and existing shareholders. We believe this transaction will ensure the future growth of our LNG business and expansion of our existing CNG business, as well as further strengthen our balance sheet and enhance our working capital."
Liquidity and Capital Resources
As of September 30, 2009, the Company increased cash and cash equivalents to $55.9 million, compared to $9.7 million as of June 30, 2009. During the quarter, cash flow provided by operating activities was $3.9 million, versus $4.6 million a year ago. The Company invested an additional $7.9 million to construction-in-progress related to its LNG project. Accounts receivable was a modest $1.1 million, and Days Sales Outstanding remained solidly below 10 days.
Financial Outlook for 2009
The Company reaffirms its projection for the full year 2009 of revenue growing 15% to 20% to a range of $78 million to $83 million, from $68 million in 2008. The Company also reaffirms its net income guidance of a range of $17.5 million to $18.5 million, a 15% to 22% growth from $15.2 million in 2008.
Mr. Ji concluded, "We are excited about the potential demand growth and price increase in China's natural gas market. We will continue to grow our business strategically by steadily expanding our CNG customer base, and we are confident that our integrated strengths of considerable operational scale, technical expertise, and balance sheet will help sustain our steady growth and profits.
"We remain optimistic about our long-term opportunities in the LNG market. As recent as mid October of 2009, our LNG plant was on schedule to be completed and to begin operations by the end of this year. However, recent unexpected events have pushed that date back to 2Q10. During mid-October, we learned that several imported critical components took longer to ship and subsequently were held up at entry ports due to a change in tariff policy, which required additional documentation. In late October, we were also notified that the LNG plant requires additional reinforcements in order to meet our strict safety requirements. Eventually, upon the completion of our new LNG plant, we intend to aggressively grow our LNG business so as to capture a sizable share of China's nascent LNG market. We believe that once in full operations, our LNG business will enable us to further strengthen our market position, enhance our brand, accelerate our growth and ultimately reward our new and existing shareholders with greater value."
The management team will hold a conference call on Tuesday, November 10th, 2009, at 8:00 am ET to discuss its third quarter 2009 results. Listeners may access the call by dialing 1-888-230-5944 or 1-913-312-1482 for international callers. A webcast will also be available via the Company's website at http://www.naturalgaschina.com . A replay of the call will be available through November 17, 2009. Listeners may access the replay by dialing 1-888-203-1112 or 1-719-457-0820 for international callers, access code: 6706463.
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'sShaanxi and Henan Provinces. The Company owns approximately 120 km of high-pressure pipelines and operates 23 CNG fuelling stations in Shaanxi Province and 12 CNG fuelling stations in Henan Province. China Natural Gas' four primary business lines include: (1) the distribution and sale of CNG through Company-owned CNG fuelling 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 fuelling 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.
About Non-GAAP Financial Measures
This press release contains non-GAAP financial measures for earnings that exclude the effect of non-cash non-operating expense related to the Senior Notes issued in January and March 2008 as well as change in fair market value of the Company's outstanding warrants. China Natural Gas' management uses those non-GAAP financial measures when it internally evaluates the performance of business and makes operating decisions, including internal budgeting and performance measurement. China Natural Gas believes that providing the non-GAAP measures is useful to investors for a number of reasons. The non-GAAP measures provide a consistent basis for investors to understand China Natural Gas' financial performance in comparison to historical periods, and it allows investors to evaluate China Natural Gas' performance using the same methodology and information as that used by China Natural Gas' management. However, investors need to be aware that non-GAAP measures are subject to inherent limitations because they do not include all of the expenses included under GAAP and they involve the exercise of judgment of which charges are excluded from the non-GAAP financial measure.
The Company has provided a reconciliation table of the non-GAAP measure to the equivalent GAAP measure.
CHINA NATURAL GAS, INC. AND SUBSIDIARIES RECONCILIATION OF GAAP TO NON-GAAP MEASURES FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
Three months ended Nine months ended SEPTEMBER 30 SEPTEMBER 30 2009 2008 2009 2008
GAAP Net Income 4,647,519 5,136,590 12,711,898 11,458,053 Add: Amortization of discount on senior notes 63,054 95,528 280,250 555,001 Amortization of deferred offering costs 11,505 24,410 63,940 147,002 Change in fair value of warrants 357,979 -- 1,473,762 --
Non-GAAP Net Income 5,080,057 5,256,528 14,529,850 12,160,056 (Excludes all non-cash items) Weighted average shares outstanding Basic 15,754,696 14,600,154 14,985,001 14,600,154 Diluted 16,139,820 14,639,795 15,035,172 14,658,419
GAAP Basic EPS 0.29 0.35 0.85 0.78 Add: Amortization of discount on senior notes 0.0040 0.0065 0.0187 0.0380 Amortization of deferred offering costs 0.0007 0.0017 0.0043 0.0101 Change in fair value of warrants 0.0227 -- 0.0983 --
Non-GAAP Basic EPS 0.32 0.36 0.97 0.83
GAAP Diluted EPS 0.29 0.35 0.85 0.78 Add: Amortization of discount on senior notes 0.0039 0.0065 0.0186 0.0379 Amortization of deferred offering costs 0.0007 0.0017 0.0043 0.0100 Change in fair value of warrants 0.0222 -- 0.0980 --
Non-GAAP Diluted EPS 0.32 0.36 0.97 0.83
SAFE HARBOR: 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 third 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.
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: firstname.lastname@example.org
ICR, Inc. Michael Tieu Tel: +86-10-6599-7960 Email: Michael.Tieu@icrinc.com
CHINA NATURAL GAS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2009 AND DECEMBER 31, 2008
September 30, December 31, 2009 2008 (Unaudited) ASSETS CURRENT ASSETS: Cash & cash equivalents $ 55,931,579 $ 5,854,383 Accounts receivable 1,141,615 906,042 Other receivable - employee advances 238,962 332,263 Inventories 1,464,958 519,739 Advances to suppliers 1,809,560 837,592 Prepaid expense and other current assets 455,586 838,294 Loan receivable 293,400 293,400 Total current assets 61,335,660 9,581,713
PROPERTY AND EQUIPMENT, NET 71,840,861 76,028,272 CONSTRUCTION IN PROGRESS 42,124,222 22,061,414 DEFERRED FINANCING COSTS 1,439,456 1,746,830 OTHER ASSETS 13,350,012 8,844,062
TOTAL ASSETS $ 190,090,211 $ 118,262,291
LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued liabilities $ 1,412,215 $ 800,013 Other payables 245,397 124,151 Unearned revenue 1,741,827 944,402 Accrued interest 274,941 861,114 Taxes payable 1,942,670 1,862,585 Total current liabilities 5,617,050 4,592,265
LONG TERM LIABILITIES: Notes payable, net of discount of $13,457,880 and $15,478,395 as of September 30, 2009 and December 31, 2008, respectively 26,542,120 24,521,605 Redeemable liabilities - warrants 17,500,000 17,500,000 Derivative liabilities - warrants 2,488,070 -- Total long term liabilities 46,530,190 42,021,605
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, 21,183,904 and 14,600,154 shares issued and outstanding at September 30, 2009 and December 31, 2008, respectively 2,118 1,460 Additional paid-in capital 79,812,871 32,115,043 Cumulative translation adjustment 8,700,988 8,661,060 Statutory reserves 5,417,413 3,730,083 Retained earnings 44,009,581 27,140,775 Total stockholders' equity 137,942,971 71,648,421
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 190,090,211 $ 118,262,291
CHINA NATURAL GAS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 (Unaudited)
Three months ended Nine months ended September 30 September 30 2009 2008 2009 2008 Revenue Natural gas revenue $ 15,454,386 $ 15,354,461 $ 46,140,884 $ 40,494,646 Gasoline revenue 1,633,478 1,187,754 4,440,892 3,466,601 Installation and other 3,037,320 1,858,985 8,813,594 5,356,113 Total revenue 20,125,184 18,401,200 59,395,370 49,317,360
Cost of revenue Natural gas cost 7,536,188 6,973,035 21,773,635 20,369,778 Gasoline cost 1,534,806 1,085,311 4,194,615 3,208,326 Installation and other 1,336,498 850,487 3,797,586 2,492,650 Total cost of revenue 10,407,492 8,908,833 29,765,836 26,070,754
Operating expenses Selling expenses 2,406,462 2,098,343 7,062,429 5,008,631 General and administrative expenses 1,422,300 968,169 4,286,620 2,947,494 Total operating expenses 3,828,762 3,066,512 11,349,049 7,956,125
Income from operations 5,888,930 6,425,855 18,280,485 15,290,481
Non-operating income expense) Interest income 7,248 13,536 23,940 120,297 Interest expense (68,407) (212,774) (745,064) (1,249,003) Other income (expense), net 178,728 (6,786) (137,954) (17,512) Change in fair value of warrants (357,979) -- (1,473,762) -- Foreign currency exchange income (loss) 280 (48,605) (50,527) (101,436) Total non- operating expense (240,130) (254,629) (2,383,367) (1,247,654)
Income before income tax 5,648,800 6,171,226 15,897,118 14,042,827
Provision for income tax 1,001,281 1,034,636 3,185,220 2,584,774
Net income 4,647,519 5,136,590 12,711,898 11,458,053
Other comprehensive income Foreign currency translation gain 195,040 756,316 39,928 4,554,040 Comprehensive income $ 4,842,559 $ 5,892,906 $ 12,751,826 $ 16,012,093
CHINA NATURAL GAS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 (Unaudited)
Nine Months Ended September 30, 2009 2008
CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 12,711,898 $ 11,458,053 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 4,175,175 2,295,534 Loss on disposal of equipment 21,372 12,265 Amortization of discount on senior notes 280,250 555,001 Amortization of financing costs 63,940 147,002 Stock based compensation 186,672 51,861 Change in fair value of warrants 1,473,762 --
Change in assets and liabilities: Accounts receivable (235,396) (1,269,832) Other receivable (31,011) -- Other receivable - employee advances 93,231 (273,759) Inventories (754,309) (194,580) Advances to suppliers (971,240) (508,417) Prepaid expense and other current assets 223,206 (783,706) Accounts payable and accrued liabilities 611,924 193,212 Other payables 121,234 37,587 Unearned revenue 796,827 34,855 Accrued interest (586,173) 350,002 Taxes payable 80,025 606,233 Net cash provided by operating activities 18,261,387 12,711,311
CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (47,797) (21,693,376) Proceeds from sales of equipment 41,308 -- Proceeds from short term investments -- 249,464 Additions to construction in progress (18,064,065) (16,679,747) Prepayment on long term assets (4,434,118) (6,774,616)
Proceeds from loan receivable -- 286,740 Return of acquisition deposit 449,970 -- Payment for intangible assets (68,347) --
Payment for land use rights (455,830) -- Net cash used in investing activities (22,578,879) (44,611,535)
CASH FLOWS FROM FINANCING ACTIVITIES: Stock issued for cash 57,607,813 -- Proceeds from senior notes -- 40,000,000 Payment for offering costs (3,237,452) (2,122,509) Net cash provided by financing activities 54,370,361 37,877,491
Effect of exchange rate changes on cash and cash equivalents 24,327 1,115,706
NET INCREASE IN CASH AND CASH EQUIVALENTS 50,077,196 7,092,973
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5,854,383 13,291,729
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 55,931,579 $ 20,384,702
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid, net of capitalized interest $ 1,014,956 $ -- Income taxes paid $ 3,176,730 $ 1,203,048