Business News

China Natural Gas Reports Second Quarter 2008 Financial Results

2008-08-13 15:01:00

            - Closes The Quarter with 32 CNG Filling Stations -

    NEW YORK, Aug. 13 /EMWNews/ -- China Natural Gas, Inc.

(OTC Bulletin Board: CHNG), one of the leading providers of pipeline

natural gas for industrial, commercial and residential use and compressed

natural gas (CNG) for vehicular fuel in Xi'an, China, today announced its

second quarter financial results for the period ended June 30, 2008.

Financial Highlights for the Second Quarter 2008: -- Revenue increased 104.2% year over year to $16.9 million -- Gross profit increased 85.0% year over year to $7.7 million -- Income from operations increased 58.0% year over year to $5.1 million -- Non-GAAP net income of $3.8 million, or $0.13 per diluted share Mr. Qinan Ji, Chairman and CEO of China Natural Gas, stated, "We are pleased to share our second quarter results with our investors. In the second quarter, we continued to expand our CNG filling station network. As of June 30, 2008, we had a total of 32 stations, 20 of which are located in Shaanxi Province, and 12 in Henan Province. We also added an additional 1,698 residential, industrial and commercial pipeline customers compared to the first quarter of 2008. We believe that the recent NDRC adjustment to retail gasoline and diesel prices will benefit our auto conversion business and support our overall long-term growth." Mr. Ji continued, "The construction of our LNG plant is progressing on schedule. During the second quarter, we invested approximately $3.4 million in our LNG-related facilities, $2.7 million of which were used for the purchase of equipment and the remainder used for investment in infrastructure related to our LNG plant, located in Yulin, Shaanxi Province. This also brings our total investment in the LNG business to approximately $17.0 million and we expect to invest another $5.0 million in the LNG facilities in the third quarter. We are also working diligently to improve our corporate governance structure. We believe our new directors will provide us with valuable guidance in both our governance system and future business strategies as we continue to expand." Revenue for the second quarter was $16.9 million, an increase of $8.6 million, or 104.2% compared with $8.3 million in the second quarter of 2007. The significant increase in revenue was due primarily to an additional 15 CNG filling stations and a year over year increase in residential, industrial and commercial pipeline customers to 91,967 from 78,216 in the second quarter of 2007. Revenue from sales of natural gas increased 103.9% to $13.8 million from $6.8 million in the prior year's period and contributed approximately 81.7% of revenue performance in the second quarter of 2008. Natural gas sales, as a percentage of revenue, remained constant at approximately 81.7%, compared with 81.8% in the second quarter of 2007. Revenue from installation and other businesses increased 105.3% to $3.1 million from $1.5 million in the second quarter of 2007, or 18.3% of total revenue. Gross profit increased 85.0% to $7.7 million in the second quarter of 2008 from $4.1 million in the second quarter of 2007. Gross margin was 45.4% in the second quarter of 2008, compared with 43.4% in the first quarter of 2008 and 50.1% in the prior year's period. Gross margin performance reflects the increases in revenue from Company-owned CNG filling stations in the Henan Province, which generated a lower gross margin than those in Xi'an, Shaanxi Province. In the second quarter of 2008, operating income increased 58.0% to $5.1 million from $3.2 million in the second quarter of 2007. Operating expenses in the second quarter of 2008 increased 176.5% to $2.6 million from $943,306 the year before. This increase reflected larger business operations with a total of 32 CNG filling stations during the second quarter of 2008, as well as continued expenses related to the identification of future natural gas filling station locations and costs associated with the government licensing and approval processes. Operating margin was 29.9% in the second quarter of 2008, compared to 27.1% in the first quarter of 2008 and 38.7% in the prior year's period, reflecting lower margin of the natural gas sold in Henan Province, as well as higher operating expenses associated with a larger sales force, the purchase of tankers and higher utilities expense. During the first quarter of 2008, the Company began to recognize non-cash non-operating expenses for the amortization of debt discount and deferred offering costs related to the 5.0% Guaranteed Senior Notes ("Notes") issued to Abax Lotus in January and March 2008. In the second quarter of 2008, these non-cash non-operating expenses were approximately $379,000, or $0.01 per diluted share. Net income for the second quarter of 2008 was $3.5 million, or $0.12 per diluted share. Excluding the impact of the non-cash expenses explained above, net income would have been $3.8 million or $0.13 per diluted share, compared with $2.7 million, or $0.11 per diluted share, in the second quarter of 2007. (Please refer to the non-GAAP reconciliation table included in this press release) Balance Sheet As of June 30, 2008, the Company had $29.2 million in cash and cash equivalents on hand, compared with $41.3 million as of March 31, 2008 and $13.3 million as of December 31, 2007. Guidance For the fiscal year 2008, the Company continues to anticipate revenue and net income growth of at least 70%. Please note that this financial guidance excludes the impact of interest charges, amortization and other costs associated with the Company's 5.0% Guaranteed Senior Notes due 2014 in an aggregate principal amount of $40 million and warrants representing the right to purchase 2,900,000 shares of the Company's common stock to Abax Lotus Ltd.

    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 of $379,132

related to the Senior Notes issued in January and March 2008. 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 following table provides the non-GAAP financial measure and the

related GAAP measure and provides a reconciliation 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 MONTHS ENDED JUNE 30, 2008 AND 2007 (Unaudited) Three months ended June 30 2008 2007 GAAP Net income 3,512,892 2,745,009 Add: Amortization of discount on senior notes (after tax effect) 251,137 - Amortization of deferred offering costs (after tax effect) 53,246 - Adjusted Net Income (Excludes all non-cash items) 3,817,275 2,745,009 *Assume an effective tax rate of 19.72% Weighted average shares outstanding Basic 29,200,304 24,210,183 Diluted 29,323,495 24,210,183 GAAP Basic EPS $ 0.12 0.11 Add: Amortization of discount on senior notes 0.0086 - Amortization of deferred offering costs 0.0018 - Adjusted Basic EPS $ 0.13 0.11 GAAP Diluted EPS $ 0.12 0.11 Add: Amortization of discount on senior notes 0.0086 - Amortization of deferred offering costs 0.0018 - Adjusted Diluted EPS $ 0.13 0.11 About China Natural Gas, Inc. China Natural Gas, Inc., ("CHNG"), is the first China-based natural gas retailing company publicly traded in the U.S. It currently owns and operates a network of CNG retail filling stations as well as a 120 kilometer long compressed natural gas pipeline in Xi'an, China. Xi'an is a fast growing Chinese city supported by a population of approximately eight million and is the "gateway" to the broad Western regions of China. CHNG currently retails natural gas at company-owned filling stations, delivers natural gas services to residential, commercial and industrial customers, and converts gasoline- fueled vehicles to hybrid (natural gas/gasoline) powered vehicles. Currently it is estimated that there are 5,000 buses and 20,000 taxis using CNG in Xi'an. This press release contains forward-looking statements regarding revenue and net income growth and our LNG processing and distribution plant. Words such as "anticipates," "expects," "intends," "plans," "targets," "projects," "believes," "seeks," "estimates" and similar expressions are intended to identify such forward-looking statements. These statements are based on the current expectations or beliefs of China Natural Gas, Inc. management; are not guarantees of future performance; are difficult to predict and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements, including the fluctuation of natural gas prices, demand for natural gas, the availability of natural gas supplies, changes in governmental regulations and/or economic policies, civil unrest, weather and general economic conditions. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. Unless legally required, CHNG undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
CONTACT In the U.S.: Ashley Ammon MacFarlane or Wei-Jung Yang ICR, Inc. 203-682-8200 CHINA NATURAL GAS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2008 and DECEMBER 31, 2007 June 30, December 31, 2008 2007 (Unaudited) ASSETS CURRENT ASSETS: Cash & cash equivalents $ 29,180,315 $ 13,291,729 Short-term investments - 238,554 Accounts receivable 854,537 306,179 Other receivable 480,690 549,820 Inventories 523,027 231,339 Advances 993,348 663,041 Prepaid expense and other current assets 771,327 109,722 Loan receivable 291,800 274,200 Total current assets 33,095,044 15,664,584 PROPERTY AND EQUIPMENT, net 45,581,330 32,291,995 CONSTRUCTION IN PROGRESS 15,537,703 2,210,367 FINANCING COSTS 1,951,746 - OTHER ASSETS 7,030,886 3,123,052 TOTAL ASSETS $103,196,709 $ 53,289,998 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 365,561 $ 293,970 Other payables 68,458 249,719 Accrued expense 141,170 - Unearned revenue 893,960 327,220 Accrued interest 741,667 - Taxes payable 1,732,193 1,211,775 Total current liabilities 3,943,009 2,082,684 LONG-TERM LIABILITIES: Notes payable, net of $16,693,697 discount 23,306,303 - Derivative liabilities - warrants 17,500,000 - Total long-term liabilities 40,806,303 - COMMITMENTS AND CONTINGENCIES - - STOCKHOLDERS' EQUITY: Preferred stock, $0.0001 per share; authorized 5,000,000 shares; none issued - - Common stock, $0.0001 per share; 45,000,000 authorized shares 29,200,304 shares issued and outstanding at June 30, 2008 and December 31, 2007 2,920 2,920 Additional paid-in capital 32,085,775 32,046,879 Stockholder receivable (2,918,000) - Cumulative translation adjustment 7,274,749 3,477,025 Statutory reserves 2,654,063 1,802,735 Retained earnings 19,347,890 13,877,755 Total stockholders' equity 58,447,397 51,207,314 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $103,196,709 $53,289,998 CHINA NATURAL GAS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007 (Unaudited) Three months ended Six months ended June 30 June 30 2008 2007 2008 2007 Revenue Natural gas revenue $ 13,794,866 $ 6,765,265 $ 25,140,185 $ 11,688,837 Installation and other 3,095,620 1,508,044 5,775,975 3,328,048 Total revenue 16,890,486 8,273,309 30,916,160 15,016,885 Cost of revenue Natural gas cost 7,214,469 3,463,242 13,396,743 5,955,893 Installation and other 2,010,254 666,957 3,765,178 1,400,523 Total cost of revenue 9,224,723 4,130,199 17,161,921 7,356,416 Gross profit 7,665,763 4,143,110 13,754,239 7,660,469 Operating expenses Selling 1,568,674 682,423 2,910,288 1,276,552 General and administrative 1,040,000 260,883 1,979,325 682,262 Total operating expenses 2,608,674 943,306 4,889,613 1,958,814 Income from operations 5,057,089 3,199,804 8,864,626 5,701,655 Non-operating income (expense): Interest income 51,476 8,330 106,761 17,739 Interest expense (676,569) - (1,036,229) - Other income 7,766 7,973 8,440 8,356 Other expense (64,197) - (71,997) - Total non- operating income (expense) (681,524) 16,303 (993,025) 26,095 Income before income tax 4,375,565 3,216,107 7,871,601 5,727,750 Provision for income tax 862,673 471,098 1,550,138 872,415 Net income 3,512,892 2,745,009 6,321,463 4,855,335 Other comprehensive income Foreign currency translation gain 1,494,722 455,308 3,797,724 736,712 Comprehensive Income $ 5,007,614 $ 3,200,317 $ 10,119,187 $ 5,592,047 Weighted average shares outstanding Basic 29,200,304 24,210,183 29,200,304 24,210,183 Diluted 29,323,495 24,210,183 29,329,733 24,210,183 Earnings per share Basic $ 0.12 $ 0.11 $ 0.22 $ 0.20 Diluted $ 0.12 $ 0.11 $ 0.22 $ 0.20

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