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China Natural Gas Announces Second Quarter 2011 Financial Results

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China Natural Gas Announces Second Quarter 2011 Financial Results

-- Second Quarter 2011 revenues increased by 29.23% year-over-year to $27.31 million, up from $21.1 million in second quarter 2010

-- Second Quarter 2011 net income decreased by 3.7% year-over-year to $4.39 million, down from $4.56 million in second quarter 2010

PR Newswire

XI'AN, China, Aug. 8, 2011 /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 second fiscal quarter ended June 30, 2011.

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 sector and geographic growth and forward integration objectives. The company has successfully commenced commercial production of its Jingbian liquefied natural gas ("LNG") plant on July 16, 2011, which represents a key milestone in its corporate history.

Our network of compressed natural gas, or CNG, fueling stations currently contains 38 stations, a significant presence in the markets we operate in. 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 2011 Financial and Operating Results

Revenues in the second quarter of 2011 increased by 29.2% to $27.31 million from $21.14 million in the second quarter of 2010, driven by the increase in the average unit selling price per cubic meter of CNG (74.2% of our revenues was generated from the sale of CNG) from $0.37 to $0.48, as well as an increase in the number of residential and commercial pipeline customers. Natural gas sales grew by 37.4% year-over-year to $22.29 million, up from $16.22 million in the second quarter of 2010. Gasoline revenues in the second quarter of 2011 decreased to $1.97 million, down by 2.9% from $2.03 million in the same period of the prior year, which was mainly attributable to our closure of four out of our eight gasoline fueling stations during the fourth quarter of 2010. Installation and services revenue increased by 6.0% year-over-year to $3.05 million from $2.88 million in the comparable period of 2010. In the second quarter of 2011, sales of natural gas, gasoline, and installation and other services contributed 81.6%, 7.2%, and 11.2% of the total revenues, respectively.

Gross profit in the second quarter of 2011 increased by 16.8% to $11.23 million, from $9.62 million in the same period of the prior year. Gross margin in the second quarter of 2011 was 41.1%, compared to 45.5% a year ago. The increase in gross profit was consistent with the increase in sales revenues, although our gross profit margin decreased as described below. Gross margin decreased primarily due to our growth rate of sales revenue being lower than that of costs of revenue, which was primarily attributable to the material increase in average purchasing costs of natural gas.

Operating income in the second quarter of 2011 was $5.34 million, an increase of 14.9% year-over-year from $4.65 million in the second quarter of 2010.  The change was primarily attributable to the increase in revenue and gross profit.

Income tax expense was $1,064,018 for an effective tax rate of 19.5%, as compared to an effective tax rate of 17.6% in the second quarter of 2010.

Net income in the second quarter of 2011 decreased 3.7% to $4.39 million, from $4.56 million in the second quarter of 2010. Net margin decreased to 16.1% during the three months ended June 30, 2011 from 21.6% during the three months ended June 30, 2010. EPS was $0.21 per diluted share in both the second quarter of 2011 and 2010.

As of June 30, 2011, the Company had $12.22 million in cash and cash equivalents, compared to $10.05 million in cash and cash equivalents at December 31, 2010. The increase was primarily attributable to the increase in unearned revenue, the reduction in advances to suppliers and the decrease in investments in construction in progress for the JBLNG project.

Net cash provided by operating activities was $12.72 million for the six months ended June 30, 2011, compared to net cash provided by operations of $10.88 million for the six months ended June 30, 2010. The increase was primarily due to the increase in unearned revenue and the reduction in prepaid expense and other current assets.

Conference Call

Management will hold a conference call on Wednesday, August 10, 2011 at 8:30 a.m. EDT (5:30 a.m. Pacific) to discuss its second quarter results.

To participate in the call please dial 1-800-860-2442, or 1 412-858-4600 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 1 hour after the end of the conference through 9:00 a.m. August 18, 2011, EDT. The number for the replay is 1-877-344-7529 or 1-412-317-0088 for international calls. 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 ( http://www.naturalgaschina.com ) 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 26 CNG fueling 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 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.

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 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

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)



June 30,



December 31,




2011



2010
















ASSETS


CURRENT ASSETS:







Cash and cash equivalents


$

12,221,545



$

10,046,249


Accounts receivable, net



2,712,502




1,821,595


Other receivables



312,331




188,364


Employee advances



305,415




302,532


Inventories



1,766,505




815,884


Advances to suppliers



1,429,156




8,434,995


Prepaid expense and other current assets



4,879,524




4,249,353


Total current assets



23,626,978




25,858,972











Investment in unconsolidated joint ventures



1,547,000




1,517,000


Property and equipment, net



93,983,731




82,769,171


Construction in progress



126,708,395




116,569,871


Deferred financing cost, net



722,250




927,166


Other assets



23,133,004




19,806,375


TOTAL ASSETS


$

269,721,358



$

247,448,555











LIABILITIES AND STOCKHOLDERS' EQUITY











CURRENT LIABILITIES:









Notes payable - current maturities


$

2,708,489



$

2,551,306


Long-term debt - current portion



4,641,000




-


Accounts payable and accrued liabilities



6,527,948




5,428,669


Other payable - related party



773,500




-


Short-term borrowing - related party



2,319,945




-


Unearned revenue



5,826,531




2,376,563


Accrued interest



1,010,229




646,528


Taxes payable



2,417,076




2,377,765


Total current liabilities



26,224,718




13,380,831











LONG-TERM LIABILITIES:









Notes payable, net of current portion



29,793,495




28,064,363


Long-term debt



13,923,000




18,204,000


Derivative liabilities – warrants



17,512,256




17,752,066


Total long-term liabilities



61,228,751




64,020,429


Total liabilities



87,453,469




77,401,260











COMMITMENTS AND CONTINGENCIES


















STOCKHOLDERS' EQUITY:









Preferred stock, par value $0.0001 per share, 50,000,000 authorized, none issued and
      outstanding



-




-


Common stock, par value $0.0001 per share, 45,000,000 authorized, 21,458,654 and
      21,321,904 issued and outstanding at June 30, 2011 and December 31,2010,
      respectively



2,145




2,132


Additional paid-in capital



82,510,535




81,611,763


Accumulated other comprehensive income



20,109,437




15,667,145


Statutory reserves



8,968,479




7,918,634


Retained earnings



70,677,293




64,847,621


Total stockholders' equity



182,267,889




170,047,296


TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY


$

269,721,358



$

247,448,555




CHINA NATURAL GAS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND

COMPREHENSIVE INCOME

(Unaudited)


Three Months Ended

 

Six Months Ended


June 30,

June 30,


2011

 

 

2010

 


2011


2010

Revenues

 

 

 

 

 

 

 

 

 

 

 

Natural gas

$

22,285,730

 

$

16,221,003

 

 

$

42,633,560

 

$

31,704,632

Gasoline

 

1,974,377

 

 

2,033,840

 

 

 

3,281,550

 

 

3,502,656

Installation and others

 

3,053,062

 

 

2,880,756

 

 

 

5,506,167

 

 

5,295,134


 

27,313,169

 

 

21,135,599

 

 

 

51,421,277

 

 

40,502,422


 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenues

 

 

 

 

 

 

 

 

 

 

 

 

Natural gas

 

12,870,450

 

 

8,357,990

 

 

 

24,969,900

 

 

16,222,644

Gasoline

 

1,902,709

 

 

1,910,294

 

 

 

3,127,433

 

 

3,277,572

Installation and others

 

1,308,916

 

 

1,251,783

 

 

 

2,372,548

 

 

2,291,706


 

16,082,075

 

 

11,520,067



 

30,469,881


 

21,791,922


 

 

 

 

 








Gross profit

 

11,231,094

 

 

9,615,532



 

20,951,396


 

18,710,500


 

 

 

 

 








Operating expenses

 

 

 

 

 








Selling

 

4,041,412

 

 

3,054,992




7,621,333



5,946,782

General and administrative

 

1,851,785

 

 

1,913,866



 

4,762,756


 

3,731,522

 

 

5,893,197

 

 

4,968,858



 

12,384,089


 

9,678,304


 

 

 

 

 








Income from operations

 

5,337,897

 

 

4,646,674



 

8,567,307


 

9,032,196


 

 

 

 

 








Non-operating income (expense):

 

 

 

 

 








Interest income

 

9,273

 

 

260,021




15,920



349,387

Interest expense

 

-

 

 

-




(4,666)



-

Other (expense) income, net

 

(9,091)

 

 

(3,031)




87,865



43,538

Change in fair value of warrants

 

123,630

 

 

665,115




239,810



1,058,183

Foreign currency exchange loss

 

(4,006)

 

 

(34,665)



 

(7,048)


 

(42,775)

 

 

119,806

 

 

887,440



 

331,881


 

1,408,333


 

 

 

 

 








Income before income tax

 

5,457,703

 

 

5,534,114




8,899,188



10,440,529


 

 

 

 

 








Provision for income tax

 

1,064,018

 

 

973,611



 

2,019,671


 

1,884,756


 

 

 

 

 








Net income

 

4,393,685

 

 

4,560,503




6,879,517



8,555,773


 

 

 

 

 








Other comprehensive income

 

 

 

 

 








      Foreign currency translation gain 

 

2,993,637

 

 

797,858



 

4,442,292


 

759,004

Comprehensive income

$

7,387,322

 

$

5,358,361



$

11,321,809


$

9,314,777


 

 

 

 

 








Weighted average shares outstanding

 

 

 

 

 








Basic

 

21,428,265

 

 

21,246,771



 

21,375,085


 

21,215,337

Diluted

 

21,428,265

 

 

21,582,662



 

21,377,407


 

21,619,989


 

 

 

 

 








Earnings per share

 

 

 

 

 








Basic

$

0.21

 

$

0.21



$

0.32


$

0.40

Diluted

$

0.21

 

$

0.21



$

0.32


$

0.40



CHINA NATURAL GAS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



For the Six Months Ended June 30,




2011



2010



 



 


CASH FLOWS FROM OPERATING ACTIVITIES:







Net income


$

6,879,517


$

8,555,773















Adjustments to reconcile net income to net cash







provided by operating activities:














Depreciation and amortization



3,744,657



3,070,705

Provision for doubtful accounts



20,810



42,390















Stock-based compensation



228,711



867,096

Change in fair value of warrants



(239,810)



(1,058,183)

Change in assets and liabilities:







Accounts receivable



(866,852)



76,830

Other receivables



(118,999)



658,742

Employee advances



2,796



50,142

Inventories



(712,617)



3,008

Advances to suppliers



(381,947)



(782,495)

Prepaid expense and other current assets



(548,647)



(2,594,001)

Accounts payable and accrued liabilities



992,566



1,470,528








Unearned revenue



3,367,774



459,057

Accrued interest



363,701



(79,987)

Taxes payable


 

(7,632)


 

141,433

Net cash provided by operating activities


 

12,724,028


 

10,881,038








CASH FLOWS FROM INVESTING ACTIVITIES:














Payment for acquisition of property and equipment



(5,723,603)



(6,260,885)

Loan receivable



-



(14,259,240)

Proceeds from loan receivable



-



14,552,620

Additions to construction in progress



(5,232,444)



(14,317,621)

Prepayment on long-term assets



(3,499,321)



(6,520,371)

Payment for acquisition of business



-



(3,637,912)

Return of acquisition deposit



-



1,613,590

Payment for intangible assets



(141,129)



(4,869,242)

Payment for land use rights


 

-


 

(1,147,360)








Net cash used in investing activities


 

(14,596,497)


 

(34,846,421)








CASH FLOWS FROM FINANCING ACTIVITIES:







Proceeds from exercise of stock options



670,075



676,201

Proceeds from short-term debt and other payable, related parties



3,085,445



-

Proceeds from long-term debt


 

-


 

17,602,800















Net cash provided by financing activities


 

3,755,520


 

18,279,001








Effect of exchange rate changes on cash and cash equivalents


 

292,245


 

                         114,998








NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS


 

2,175,296


 

(5,571,384)








CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD



10,046,249



48,177,794








CASH AND CASH EQUIVALENTS, END OF PERIOD


$

12,221,545


$

42,606,410








SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:







Interest paid, including capitalized interest


$

1,700,611


$

1,288,328

Income taxes paid


$

2,062,496


$

2,030,575








Non-cash transactions for investing and financing activities:







Construction material transferred to construction in progress


$

5,346,835


$

-

Construction in progress transferred to property and equipment


$

12,781,821


$

4,107,320

Advances to suppliers transferred to construction in process


$

7,480,412


$

1,678,940
























 



 


Other assets transferred to construction in progress


$

640,767


$

-

Capitalized interest - amortization of discount of notes payable and issuance cost


$

2,091,230


$

1,777,516



For more information, please contact:



China Natural Gas, Inc.



Bode Xu, CFO



Phone: +86-29-8832-7391



Cell: +86-158-2969-1287



Email: bode.xu@naturalgaschina.com






Jackie Shi



Investor Relations Director



Phone: +86-29-8832-3325 x922



Cell:  +86-139-9287-9998



Email: yjshi@naturalgaschina.com




SOURCE China Natural Gas, Inc.

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