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China Natural Gas Announces Third Quarter 2011 Financial Results

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China Natural Gas Announces Third Quarter 2011 Financial Results

-- Third Quarter 2011 revenues increased by 65.3% year-over-year to $36.9 million, up from $22.33 million in third quarter 2010

-- Third Quarter 2011 net income increased by 26.8% year-over-year to $4.55 million, up from $3.58 million in third quarter 2010

PR Newswire

XI'AN, China, Nov, 14, 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 third fiscal quarter ended September 30, 2011.

Qinan Ji, Chairman of China Natural Gas, Inc. commented: "We are pleased to share the results of our third quarter, as we believe that they demonstrate continued progress in our sector and geographic growth and forward strategic objectives. The company has successfully commenced commercial production of its Jingbian liquefied natural gas ("LNG") plant and material revenue has been realized from the sale of LNG in the third quarter, 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 fourth quarter of the year is promising as we continue to grow our business, and we look forward to sharing any future developments as they materialize."

Third Quarter 2011 Financial and Operating Results

Revenues in the third quarter of 2011 increased by 65.3% to $36.9 million from $22.33 million in the third quarter of 2010, mainly driven by the realization of revenue from the sale of liquefied natural gas, or LNG, which started in July 2011.  Natural gas revenue from our fueling stations in the third quarter of 2011 increased by 25.7% to $19.73 million from $15.7 million in the third quarter of 2010, mainly because the average unit selling price per cubic meter increased to $0.48 (RMB 3.13) from $0.38 (RMB 2.54), net of VAT, due to the increase in the sales prices of our natural gas in Shaanxi and Henan Provinces based on regulatory changes implemented by the PRC government during the fourth quarter of 2010. Natural gas revenue from our pipelines in the third quarter of 2011 decreased by 22.6% to $1.66 million from $2.14 million in the third quarter of 2010, primarily due to the fact that the compressor station in Makou, which started to contribute revenue in August 2010, did not operate at full capacity due to an electricity quota limit set by the local government for the three months ended September 30, 2011. Our LNG production facility in Jingbian County, Shaanxi Province started operation in July 2011. Revenue from LNG was $10.84 million in the third quarter of 2011. Gasoline revenue in the third quarter of 2011 decreased to $1.51 million, down by 20.8% from $1.9 million in the same period of the prior year, which was mainly attributable to the closing of four out of eight gasoline fueling stations of ours during the fourth quarter of 2010 and the second quarter of 2011. Installation and other services revenue increased by 22.3% year-over-year to $3.16 million in the third quarter of 2011 from $2.59 million in the comparable period of 2010. In the third quarter of 2011, sales of natural gas, gasoline, and installation and other services contributed 87.3%, 4.1%, and 8.6% of the total revenues, respectively.

Gross profit in the third quarter of 2011 increased by 51.0% to $14.18 million, from $9.39 million in the same period of the prior year. Gross margin in the third quarter of 2011 was 38.4%, compared to 42.1% a year ago. The increase in gross profit was consistent with the increase in sales revenues. Gross margin decreased primarily due to lower gross margin level of our LNG business, as compared to the gross margins of those business lines making greatest contribution to revenues, and the growth rate of sales price of natural gas products being lower than that of purchase costs of natural gas.

Operating income in the third quarter of 2011 was approximately $7 million, an increase of 75.2% year-over-year from approximately $4 million in the third quarter of 2010. The change was primarily attributable to the realization of the revenue of LNG, which started in July 2011.

Income tax expense was $1,529,451 for an effective tax rate of 25.2%, as compared to an effective tax rate of 18.9% in the third quarter of 2010.

Net income in the third quarter of 2011 increased by 26.8% to $4.55 million, from $3.58 million in the third quarter of 2010. Net margin decreased to 12.3% during the three months ended September 30, 2011 from 16.1% during the three months ended September 30, 2010. Earnings per share was $0.21 per diluted share in the third quarter of 2011 compared to 0.17 in the same period of 2010.

As of September 30, 2011, the Company had $11.21 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 decrease in investments in construction in progress of the LNG project.

Net cash provided by operating activities was $15.75 million for the nine months ended September 30, 2011, compared to net cash provided by operations of $13.53 million for the nine months ended September30, 2010. The increase was primarily due to the increase in unearned revenue, the increase in accounts payable and accrued liabilities, and adjustments for non-cash expense items.

Conference Call

Management will hold a conference call on Tuesday, November 15, 2011 at 8:30 a.m. EST (5:30 a.m. PST) to discuss financial results from its third quarter ended September 30, 2011.

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.

A replay of the call will be available 1 hour after the end of the conference through 9:30 a.m. November 15, 2011, EST. The number for the replay is 1-877-344-7529 or 1-412-317-0088 for international calls; the pass code for the replay is 10006741.

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; (4) the conversion of gasoline-fueled vehicles to hybrid (natural gas/gasoline) powered vehicles through its auto conversion division; and (5) Production and sale of LNG through the Company's LNG production facility.

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)



September 30,


December 31,



2011


2010



 


 



 


 

ASSETS

CURRENT ASSETS:





Cash and cash equivalents


$

11,213,236


$

10,046,249

Accounts receivable, net



2,023,046



1,821,595

Other receivables



539,521



188,364

Employee advances



287,279



302,532

Inventories



2,085,768



815,884

Advances to suppliers



6,928,676



8,434,995

Prepaid expense and other current assets


 

4,540,379


 

4,249,353

Total current assets



27,617,905



25,858,972








Investment in unconsolidated joint ventures



1,565,000



1,517,000

Property and equipment, net



175,431,253



82,769,171

Construction in progress



39,965,531



116,569,871

Deferred financing cost, net



619,792



927,166

Other assets


 

30,750,525


 

19,806,375

TOTAL ASSETS


$

275,950,006


$

247,448,555








LIABILITIES AND STOCKHOLDERS' EQUITY








CURRENT LIABILITIES:







Notes payable - current maturities


$

7,529,330


$

2,551,306

Long-term debt - current portion



4,695,000



-

Accounts payable and accrued liabilities



7,563,468



5,428,669

Other payable - related party



782,500



-

Short-term borrowing - related party



2,319,945



-

Unearned revenue



5,671,402



2,376,563

Accrued interest



532,495



646,528

Taxes payable


 

2,921,975


 

2,377,765

Total current liabilities



32,016,115



13,380,831








LONG-TERM LIABILITIES:







Notes payable, net of current portion



22,587,989



28,064,363

Long-term debt



14,085,000



18,204,000

Derivative liabilities – warrants


 

17,500,285


 

17,752,066

Total long-term liabilities


 

54,173,274


 

64,020,429

Total liabilities


 

86,189,389


 

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 September 30, 2011 and December 31,2010, respectively



2,145



2,132

Additional paid-in capital



82,761,447



81,611,763

Accumulated other comprehensive income



22,806,158



15,667,145

Statutory reserves



9,579,928



7,918,634

Retained earnings


 

74,610,939


 

64,847,621

Total stockholders' equity


 

189,760,617


 

170,047,296

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY


$

275,950,006


$

247,448,555




CHINA NATURAL GAS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND

COMPREHENSIVE INCOME

(Unaudited)


Three Months Ended

 

Nine Months Ended


September 30,

September 30,


2011

 

 

2010

 


2011


2010

Revenues

 

 

 

 

 

 

 

 

 

 

 

Natural gas

$

32,225,481

 

$

17,836,178

 

 

$

74,859,041

 

$

49,540,810

Gasoline

 

1,508,657

 

 

1,904,357

 

 

 

4,790,207

 

 

5,407,013

Installation and others

 

3,163,237

 

 

2,585,939

 

 

 

8,669,404

 

 

7,881,073


 

36,897,375

 

 

22,326,474

 

 

 

88,318,652

 

 

62,828,896


 


 

 


 

 

 


 

 


Cost of revenues

 


 

 


 

 

 


 

 


Natural gas

 

19,893,643

 

 

9,904,265

 

 

 

44,863,543

 

 

26,126,909

Gasoline

 

1,461,302

 

 

1,798,825

 

 

 

4,588,735

 

 

5,076,397

Installation and others

 

1,363,506

 

 

1,234,189

 

 

 

3,736,054

 

 

3,525,895


 

22,718,451

 

 

12,937,279



 

53,188,332


 

34,729,201


 


 

 









Gross profit

 

14,178,924

 

 

9,389,195



 

35,130,320


 

28,099,695


 


 

 









Operating expenses

 


 

 









Selling

 

4,667,132

 

 

3,663,654




12,288,465



9,610,436

General and administrative

 

2,513,296

 

 

1,732,058



 

7,276,052


 

5,463,580

 

 

7,180,428

 

 

5,395,712



 

19,564,517


 

15,074,016


 


 

 









Income from operations

 

6,998,496

 

 

3,993,483



 

15,565,803


 

13,025,679


 


 

 









Non-operating income (expense):

 


 

 









Interest income

 

12,403

 

 

49,403




28,323



398,790

Interest expense

 

(465,236)

 

 

-




(469,902)



-

Other (expense) income, net

 

(62,059)

 

 

(18,914)




25,806



24,624

Change in fair value of warrants

 

11,971

 

 

449,820




251,781



1,508,003

Foreign currency exchange loss

 

(421,031)

 

 

(54,167)



 

(428,079)


 

(96,942)

 

 

(923,952)

 

 

426,142



 

(592,071)


 

1,834,475


 


 

 









Income before income tax

 

6,074,544

 

 

4,419,625




14,973,732



14,860,154


 


 

 









Provision for income tax

 

1,529,451

 

 

834,783



 

3,549,122


 

2,719,539


 

 

 

 









Net income

 

4,545,093

 

 

3,584,842




11,424,610



12,140,615


 


 

 









Other comprehensive income

 


 

 









Foreign currency translation gain 

 

2,696,721

 

 

3,302,747



 

7,139,013


 

4,061,751

Comprehensive income

$

7,241,814

 

$

6,887,589



$

18,563,623


$

16,202,366


 


 

 

 








Weighted average shares outstanding

 


 

 

 








Basic

 

21,458,654

 

 

21,321,904



 

21,403,052


 

21,251,882

Diluted

 

21,458,654

 

 

21,422,527



 

21,403,052


 

21,532,612


 


 

 









Earnings per share

 


 

 









Basic

$

0.21

 

$

0.17



$

0.53


$

0.57

Diluted

$

0.21

 

$

0.17



$

0.53


$

0.56


















CHINA NATURAL GAS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)





For the Nine Months Ended September 30,




2011



2010



 



 









Net income


$

11,424,610


$

12,140,615















Adjustments to reconcile net income to net cash







provided by operating activities:














Depreciation and amortization



6,271,846



4,798,446

Provision for doubtful accounts



6,759



129,167















Gain on disposal of equipment



(3,366)



-

Stock-based compensation



479,622



1,075,315

Change in fair value of warrants



(251,781)



(1,508,003)

Change in assets and liabilities:







Accounts receivable



(148,404)



(200,764)

Other receivables



(339,992)



561,238

Employee advances



24,019



40,640

Inventories



(1,011,663)



(82,178)

Advances to suppliers



(5,863,429)



(1,993,592)

Prepaid expense and other current assets



(313,404)



(2,778,533)

Accounts payable and accrued liabilities



1,953,199



1,708,603








Unearned revenue



3,171,096



363,203

Accrued interest



(114,033)



(650,637)

Taxes payable


 

461,903


 

(69,060)

Net cash provided by operating activities


 

15,746,982


 

13,534,460








CASH FLOWS FROM INVESTING ACTIVITIES:














Payment for acquisition of property and equipment



(6,568,845)



(6,557,183)

Proceeds from sales of property and equipment



16,896



-

Loan to related party



-



(9,858,240)

Loans to third party



-



(4,401,000)

Repayment of loan receivable-related party



-



9,858,240

Repayment of loans receivable-third party



-



4,695,200

Additions to construction in progress



(7,884,773)



(22,433,455)

Prepayment on long-term assets



(805,522)



(8,323,603)

Payment for acquisition of business



-



(3,648,080)

Return of acquisition deposit



-



1,618,100

Payment for intangible assets



(189,327)



(4,882,939)

Payment for land use rights


 

-


 

(1,765,200)








Net cash used in investing activities


 

(15,431,571)


 

(45,698,160)








CASH FLOWS FROM FINANCING ACTIVITIES:







Proceeds from exercise of stock options



670,075



676,200

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



3,090,647



1,323,900

Proceeds from long-term debt


 

-


 

17,652,000

Repayment of senior notes



(3,333,334)



-















Net cash provided by financing activities


 

427,388


 

19,652,100








Effect of exchange rate changes on cash and cash equivalents


 

424,188


 

674,799








NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS


 

1,166,987


 

(11,836,801)








CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD



10,046,249



48,177,794








CASH AND CASH EQUIVALENTS, END OF PERIOD


$

11,213,236


$

36,340,993








SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:







Interest paid, including capitalized interest


$

3,004,095


$

2,629,926

Income taxes paid


$

3,142,069


$

3,012,334








Non-cash transactions for investing and financing activities:







Construction material transferred to construction in progress


$

6,210,629


$

-

Construction in progress transferred to property and equipment


$

93,297,528


$

4,143,807

Construction in progress transferred to intangible assets



11,611,672



-

Advances to suppliers transferred to construction in process


$

7,609,906


$

-
























 



 


Other assets transferred to construction in progress


$

2,342,356


$

15,924,502

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


$

3,142,357


$

2,731,695













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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