China Energy Corp. Reports Financial Results for Second Quarter of Fiscal Year 2010: Reaffirms Fiscal Year 2010 Guidance
-- Second quarter FY 2010 revenue up 377% to $20.5 million
-- Net income of $4.4 million, with EPS of $0.10 per share
-- Gross profit margin for the second quarter FY 2010 increased sequentially to 41% from 33%
-- Company reaffirms full year guidance, anticipates net income of $17 million to $18 million
HOHHOT CITY, China, July 19 /PRNewswire-Asia-FirstCall/ -- China Energy Corporation (OTC Bulletin Board: CHGY), ("China Energy" or the "Company"), a coal trader and a leading producer and processor of raw coal for domestic heating, electrical generation, and coking purposes for steel production and a supplier of heating and electric energy services, in Inner Mongolia, recently announced financial results for the second quarter of its fiscal year ending May 31, 2010.
Summary Financials
Second Quarter Results (three months ended May 31)
(USD) FY2010 FY2009 CHANGE
Sales $20.5 million $4.3 million +377%
Gross Profit $8.5 million $0.05 million +16,900%
Net Income $4.4 million ($0.97 million) --
EPS (Basic) $0.10 ($0.02) --
Six Months Results (ended May 31)
(USD) FY2010 FY2009 CHANGE
Sales $41.2 million $9.3 million +343%
Gross Profit $15.4 million $0.37 million +4,062%
Net Income $8.4 million ($1.5 million) --
EPS (Basic) $0.19 ($0.03) --
Second Quarter Results
For the quarter ended May 31, 2010, the Company reported revenue of $20.5 million, a 377% increase over revenue of $4.3 million in the second quarter of fiscal year 2009. Quarterly sales from the Company's coal group increased 994% to $17.5 million, or 86% of total sales, compared to $1.6 million, or 38% of total sales in the prior-year quarter. As a component of this, 48% of total company sales came from coal production, and 38% came from coal trading during the quarter. China Energy produced approximately 227,000 metric tons of coal in the second quarter of 2010, compared to 12,000 metric tons in the same period of fiscal year 2009. The year-over-year increase in revenue from the Company's coal group was driven by a combination of the fact that production at the Company's LaiYeGou coal mine in Inner Mongolia was partially shut down in 2009 due to the $10 million expansion and improvement program and the resulting increase in coal production in 2010. The program was completed in the third quarter of 2009 and included the installation of more efficient "longwall" mining equipment.
Quarterly sales at the heat power group totaled $3.0 million, or 14% of total sales compared to $2.6 million, or 62% of total sales in the prior-year quarter. The higher level of sales from the heat power group was due to an increase in coverage area to 2.7 million square meters from 2.1 million square meters in the prior-year quarter, and a slight increase in the volume of electricity sold by its electric power operations.
"Due to our expanded production capacity and the efficiency of our longwall mining equipment, we expect revenue from coal production to remain robust, and expect incremental growth from our proprietary coal trading operation as we have been granted additional quota for space on trains from the local railway bureau," stated WenXiang Ding, chief executive officer and president. "Additionally, our momentum, financial strength, existing infrastructure, and proximity to additional coal resources in the region position the company well for expansion through potential acquisitions. We also expect the continued development of the XueJiaWan district to fuel growth in our Heat Power segment."
Cost of goods sold in the second quarter of fiscal year 2010 was approximately $12 million, compared to approximately $4.2 million in the second prior-year quarter. Gross profit was $8.5 million and the gross margin was 41% in the quarter, compared to $0.05 million in gross profit and a gross margin of 1% during the same period in fiscal year 2009. Gross profit margin for the second quarter of fiscal 2010 increased sequentially to 41% from 33% in the first quarter of fiscal 2010 due primarily to the increase in revenues recognized as a percentage of total sales by the Company's Coal Group, which encompasses higher gross margins than its Heat Power business segment.
Total operating expenses for the second quarter of fiscal year 2010 were approximately $2 million, or 9.8% of revenue, compared to $1 million or 23% of revenue in second-quarter fiscal year 2009. Selling and marketing expenses in second-quarter fiscal year 2010 were $1.4 million compared to $0.2 million in the same period in fiscal year 2009, and general and administration expenses totaled $0.6 million and $0.8 million in the respective periods. The increase in selling and marketing expenses in the second quarter of fiscal year 2010 was primarily attributable to the expansion of the proprietary coal trading business since the second fiscal quarter of 2009 as a result of additional space to ship coal on local railcars as allocated by the local railway bureau. Despite the additional operating expenses, the strong revenue growth led to an operating margin of 31%, compared with negative 23% in the prior-year quarter.
Net income during the quarter totaled approximately $4.4 million, or $0.10 per share, compared to a loss of approximately $1 million, or $0.02 per share in the second quarter of fiscal year 2009. Net income margins were 21% for the second quarter of fiscal year 2010. Per share amounts for second quarter 2010 and 2009 are based on 45.0 million shares outstanding.
Six-Month Results
For the six months ended May 31, 2010, the Company reported revenue of $41.2 million, a 343% increase over revenue of $9.3 million in the same period of fiscal year 2009. Six-month sales from the Company's coal group increased 956% to $33.8 million, or 82% of total sales, compared to $3.2 million, or 34% of total sales in the prior year. As a component of this, 38% of total company sales came from coal production, and 44% came from coal trading. China Energy produced approximately 383,000 metric tons of coal during the six months of fiscal 2010, compared to 22,000 metric tons in the same period of fiscal year 2009. The year-over-year increase in revenue from the Company's coal group was primarily driven by a combination of the fact that production at the Company's LaiYeGou coal mine in Inner Mongolia was partially shut down in 2009 due to the $10 million expansion and improvement program and the resulting significant increase in coal production resulting from such program in 2010. Sales at the heat power group totaled $7.5 million, or 18% of total sales compared to $6.1 million, or 66% of total sales in the same period of last year.
Cost of goods sold for the six months ended May 31, 2010 was approximately $25.9 million, compared to approximately $8.9 million in the prior year. Gross profit was $15.4 million and the gross margin was 37% in the six months of fiscal 2010, compared to $0.37 million in gross profit and a gross margin of 4% during the same period in fiscal year 2009.
Total operating expenses for the six months of fiscal year 2010 were approximately $4 million, or 9.7% of revenue, compared to $1.5 million or 16.1% of revenue same period in fiscal year 2009.
Net income for the six months of fiscal year 2010 totaled approximately $8.4 million, or $0.19 per share, compared to a loss of approximately $1.4 million, or $0.03 per share in the same period in fiscal year 2009. Net income margins were 20.4% for the six months of fiscal year 2010. Per share amounts for second quarter 2010 and 2009 are based on 45 million shares outstanding.
Balance Sheet and Cash Flow
Cash and cash equivalents totaled $10.1 million on May 31, 2010 compared to $5.1 million on November 30, 2009. The Company had total assets of $106 million versus total liabilities of $65 million as of May 31, 2010. For the first half of fiscal year 2010, the Company generated $4.8 million in cash from operations versus cash used in operations of $9.4 million in the same period of fiscal year 2009.
Financial Guidance
The company is reaffirming its previously reported fiscal year guidance, and anticipates reporting between $17 million and $18 million in net income for its fiscal year ending November 30, 2010. The midpoint of this range represents an increase of 243% from fiscal year 2009.
Management anticipates sales of its Coal Group, which includes coal mining and sales as well as coal trading, will represent approximately 80% to 90% of revenues during 2010. The Company expects to produce an aggregate of approximately 800,000 metric tons of coal for the fiscal year ending November 30, 2010. China Energy produced approximately 383,000 metric tons of coal in the first half of fiscal 2010 compared with 22,000 metric tons in the year ago period. The Company also expects higher level of sales from the Heat Power group due to an increase in coverage area of the Company's heating operations and an increase in the volume of electricity sold by its electric power operations. The Company's guidance does not include any contribution from future acquisitions by the Company. Management will continue to evaluate its business outlook as necessary and communicate any changes on a quarterly basis or when appropriate.
About China Energy Corporation
China Energy Corporation produces and processes raw coal for domestic heating, electrical generation and coking purposes for steel production primarily in the People's Republic of China, and acts as a brokerage in facilitating coal trade transactions. The Company produces coal through its subsidiary Inner Mongolia Tehong Coal Group Co, Ltd. ("Coal Group") and supplies heating and electricity requirements throughout the XueJiaWan district through its subsidiary Inner Mongolia Zhunger Heat Power Co., Ltd. ("Heat Power"). Through Heat Power, China Energy operates a thermoelectric plant and 32 heat transfer stations located in XueJiaWan, Ordos City in which the Company has a monopoly for heating supply granted to the Company by the local government. For additional information on China Energy Corporation see http://www.ceccec.com .
Cautionary Statement Regarding Forward-Looking Information
This press release may contain certain "forward-looking statements" relating to the business of China Energy Corporation, and its subsidiary companies. All statements, other than statements of historical fact included herein are "forward-looking statements" including statements regarding: the impact of the proceeds from the private placement on the Company's short term business and operations, the general ability of the Company to achieve its commercial objectives, including the ability of the Company to sustain growth; the business strategy, plans and objectives of the Company and its subsidiaries; and any other statements of non-historical information. These forward-looking statements are often identified by the use of forward-looking terminology such as "believes," "expects" or similar expressions, involve known and unknown risks and uncertainties. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those discussed in the Company's periodic reports that are filed with the Securities and Exchange Commission and available on its website (http://www.sec.gov)
For more information, please contact:
Company:
Alex (Yuan) Gong, Chief Financial Officer
Tel: +86-10-5203-6900
Email: [email protected]
Investor Relations:
HC International, Inc.
Ted Haberfield, Executive VP
Tel: +1-760-755-2716
Email: [email protected]
(Financial Tables Follow)
CHINA ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
May 31, November 30,
2010 2009
(Unaudited) (Audited)
US$ US$
ASSETS
Current assets:
Cash and cash equivalents $10,148,451 $5,073,645
Term deposit-restricted 7,320,108 --
Accounts receivable, net of allowance
for doubtful accounts of $120,782 and
$120,853, respectively 7,770,278 4,600,667
Other receivables 4,536,142 4,447,272
Advance to suppliers 6,000,416 5,511,630
Inventories 3,995,005 5,574,465
Total current assets 39,770,400 25,207,679
Fixed assets:
Property, plant and equipment 51,058,566 50,546,862
Construction in progress 4,993,734 4,236,281
56,052,300 54,783,143
Less: accumulated depreciation and
depletion (9,344,274) (7,456,849)
Net fixed assets 46,708,026 47,326,294
Other assets:
Investment property, net of accumulated
depreciation of $188,721 and $166,172,
respectively 1,912,498 1,936,278
Intangible assets, net of amortization
of $936,113 and $787,417, respectively 3,476,360 3,627,642
Restricted cash 533,358 149,898
Other long-term assets 486,077 450,021
Notes receivable 13,309,387 7,913,100
Total other assets 19,717,680 14,076,939
TOTAL ASSETS $106,196,106 $86,610,912
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term bank loans 16,104,238 12,012,012
Accounts payable 10,673,206 11,489,568
Notes payable 5,856,087 --
Advance from customers 9,761,577 12,125,187
Accrued liabilities 651,448 325,539
Other payables 4,501,405 387,729
Shareholder loans 10,073,564 9,972,279
Current portion of deferred income 852,888 822,930
Total current liabilities 58,474,413 47,135,244
Deferred income, net of current portion 6,067,091 6,224,033
Total liabilities 64,541,504 53,359,277
Stockholders' equity:
Common stock (authorized 200,000,000
shares of $0.001 par value; 45,000,000
shares issued and outstanding,
respectively) 45,000 45,000
Additional paid-in capital 8,655,805 8,655,805
Paid in capital - stock options 315,000 315,000
Retained earnings 20,749,751 12,542,081
Statutory reserves 8,297,853 8,078,765
Other comprehensive income 3,591,193 3,614,984
Total stockholders' equity 41,654,602 33,251,635
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $106,196,106 $86,610,912
CHINA ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the six months ended For the three months ended
May 31, May 31,
2010 2009 2010 2009
US$ US$ US$ US$
Revenues $41,252,616 $9,298,621 $20,483,740 $4,283,675
Cost of
revenues (25,852,305) (8,924,191) (12,025,898) (4,236,939)
Gross profit 15,400,311 374,430 8,457,842 46,736
Operating
expenses:
Selling and
marketing (2,222,281) (238,153) (1,381,564) (195,516)
General and
administrative (1,731,846) (1,230,144) (628,194) (838,090)
Total operating
expenses (3,954,127) (1,468,297) (2,009,758) (1,033,606)
Income (loss)
from operations 11,446,184 (1,093,867) 6,448,084 (986,870)
Investment
income -- 36,847 -- 2,496
Non-operating
income 682,678 325,173 569,215 164,772
Finance
expenses, net (771,001) (198,722) (555,652) (103,334)
Government
subsidies -- 164,145 -- 11,121
Non-operating
expenses (175,511) (757,083) (131,155) (56,418)
Income (loss)
before income
taxes 11,182,350 (1,523,507) 6,330,492 (968,233)
(Provision for)
benefit from
income taxes (2,755,592) 24,590 (1,908,020) 1,666
Net income
(loss) $8,426,758 $(1,498,917) $4,422,472 $(966,567)
Other compre-
hensive income
Foreign currency
translation
adjustment (23,791) 79,005 (28,256) 131,410
Total
comprehensive
income (loss) $8,402,967 $(1,419,912) $4,394,216 $(835,157)
Net income (loss)
per common share
basic 0.19 (0.03) 0.10 (0.02)
Net income (loss)
per common share
diluted 0.17 (0.03) 0.09 (0.02)
Weighted average
common shares
outstanding
basic 45,000,000 45,000,000 45,000,000 45,000,000
Weighted average
common shares
outstanding
diluted 48,423,445 45,000,000 48,423,445 45,000,000
CHINA ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the six months ended
May 31,
2010 2009
US$ US$
Cash flows from operating activities:
Net income (loss) $8,426,758 $(1,498,917)
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 2,108,233 1,441,566
Interest accrued on shareholder loans 109,348 106,433
Loss on disposal of property,
plant and equipment -- 744,524
Gain from short-term investments -- (36,847)
Changes in operating assets and
liabilities:
(Increase) in term deposit (7,320,108) --
(Increase) in restricted cash (383,460) --
(Increase) in accounts receivable (3,048,758) (1,803,791)
(Increase) in other receivables (88,870) (5,097,545)
Decrease (increase) in advance to
suppliers 1,287,107 (770,088)
Decrease (increase) in inventories 1,579,460 (78,612)
(Decrease) increase in deferred
income (126,984) 475,131
Increase (decrease) in accounts
payable 198,588 (4,133,827)
(Decrease) increase in advance
from customers (2,363,610) 838,514
Increase in accrual liabilities
and other payables 4,439,585 415,551
Net cash provided by (used in)
operating activities 4,817,289 (9,397,908)
Cash flows from investing activities:
Purchase of property, plant and
equipment (3,093,625) (2,186,070)
Increase in construction in progress (1,076,171) (698,877)
(Increase) in notes receivable (5,396,287) (330,560)
Payments received on notes receivable -- 893,563
Net cash (used in) investing activities (9,566,083) (2,321,944)
Cash flows from financing activities:
Proceeds from short-term bank loans 16,112,495 12,011,836
Proceeds from notes payable 5,856,087 --
Principal payments made on short-term
bank loans (12,011,132) (2,929,716)
Advance from shareholders 513,711 4,439,636
Repayments of shareholders loans (517,651) (594,000)
Net cash provided by financing
activities 9,953,510 12,927,756
Effect of exchange rate changes on
cash (129,910) 33,140
Net increase in cash and cash
equivalents 5,074,806 1,241,044
Cash and cash equivalents,
beginning of period 5,073,645 456,802
Cash and cash equivalents, end of
period $10,148,451 $1,697,846
Supplemental disclosure of cash
flow information
Cash paid for interest $554,554 $276,071
Cash paid for income taxes $2,346,087 $--
CHINA ENERGY CORPORATION AND SUBSIDIARIES
SUMMARY OF REVENUE BY SEGMENT
(UNAUDITED)
For the six months ended For the three months ended
May 31, May 31,
2010 2009 2010 2009
Revenue by segment:
Coal Group
Coal Trading 18,101,191 2,251,210 7,699,181 1,141,455
Coal Production 15,675,808 923,078 9,829,852 502,950
Total Coal 33,776,999 3,174,288 17,529,033 1,644,405
Heat Power
Electricity 2,146,825 1,945,428 1,158,751 1,033,782
Heating Supply 5,328,792 4,105,820 1,795,956 1,532,403
Others -- 73,085 -- 73,085
Total Heat Power 7,475,617 6,124,333 2,954,707 2,639,270
Total Company
Revenue 41,252,616 9,225,536 20,483,740 4,210,590
Profit by segment:
Coal Group 7,828,143 147,264 4,470,349 112,231
Heat Power 598,615 (1,646,181) (47,877) (1,078,798)
Reported Rev for Total
Heat Power Group 6,124,333 2,639,270
Difference from above
calculation 73,085 73,085
SOURCE China Energy Corporation
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