China Natural Gas Announces Fourth Quarter and Year End 2010 Financial Results

- 4Q10 Revenue Increases 25% Y o Y to $27.12 Million

- 4Q10 Gross Profit Increases 7% Y o Y to $11.31 Million

Mar 14, 2011, 15:44 ET from China Natural Gas, Inc.

NEW YORK, March 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 fourth quarter and full fiscal year ended December 31, 2010.

Fourth Quarter 2010 Results

Revenue in the fourth quarter of 2010 increased 25% to $27.12 million from $21.67 million in the fourth quarter of 2009, driven by addition of fueling stations and increase in the number of residential and commercial pipeline customers. Sales of natural gas grew approximately 36% year-over-year to $21.83 million, from $16.10 million in the fourth quarter of 2009. Gasoline revenue in the fourth quarter of 2010 increased 9% to $2.12 million, from $1.94 million in the prior year's period. Installation and services revenue decreased 12% year-over-year to $3.18 million, from $3.63 million a year ago. In the fourth quarter of 2010, sales of natural gas, gasoline, and installation and other services contributed 80%, 8%, and 12% of total revenue, respectively.

Gross profit in the fourth quarter of 2010 expanded 7% to $11.31 million, from $10.53 million in the same period of 2009, driven by the increased sales volume of natural gas. Gross margin in the fourth quarter of 2010 was 42%, compared to 49% a year ago, was mainly due to the increase of procurement cost of coal bed methane in Henan province.

In total, operating expenses in the fourth quarter of 2010 increased by approximately $1,55 million to $5.31 million, from $3.76 million in the same period of 2009. Operating income in the fourth quarter of 2010 was $6.00 million, a decrease of 11% year-over-year, from $6.77 million in the same period of 2009.

During the quarter, the Company recognized $285,569 of non-cash gain from the change in the fair value of warrants, compared to $442,432 in the fourth quarter of 2009. Income tax expense was $1.07 million at an effective tax rate of 17%, as compared to an effective tax rate of 16% in the fourth quarter of 2009. Net income in the fourth quarter of 2010 decreased 17% to $5.08 million, or $0.24 per diluted share, from $6.12 million, or $0.27 per diluted share, in the fourth quarter of 2009.

Excluding the impact of the non-cash expenses (see "About Non-GAAP Financial Measures" below), adjusted net income was $4.79 million, versus $5.68 million in the fourth quarter of 2009. For the fourth quarter of 2010, adjusted earnings per diluted share was $0.23, versus $0.26 per diluted share in the fourth quarter of 2009.

Mr. Qinan Ji, Chairman and CEO of China Natural Gas, commented: "We are very pleased with our strong growth and profitability for the fourth quarter and full year 2010. During this quarter, we increased our number of pipeline customers to 115,479, and we expanded the number of our CNG gas stations to 39. We continued to see higher sales volumes resulting from the increasing number of hybrid vehicle fleet and municipal vehicles in the city of Xi'an, which utilize compressed natural gas as a cleaner, cheaper and more efficient fuel alternative. We believe our strong performance in 2010 demonstrated the long-term market potentials for our CNG gas stations as well as our piped natural gas and installation services for residential, commercial and industrial customers."

Financial Highlights for the Fiscal Year 2010:

  • Revenue increased by 11% to $89.95 million, primarily due to the rise in sales price of natural gas and gasoline in 2010;
  • Gross profit decreased by 2% to $39.41 million;
  • Income from operations decreased by 24% to $19.03 million from $25.05 million in fiscal year 2009.
  • Non-GAAP net income of $15.43 million, or $0.72 per diluted share

Revenue for fiscal year 2010 increased by 11% to $89.95 million from $81.07 million for fiscal year 2009, mainly due to the rise in sales prices of natural gas and gasoline in 2010. Revenue from sales of natural gas increased by 15% to $71.37 million in the year 2010 from $62.24 million in the prior year. Gasoline revenue increased 18% to $7.52 million from $6.38 million in the prior year. Installation and other revenue decreased by 11% to $11.06 million from $12.45 million in the fiscal year 2009.

Gross profit for fiscal year 2010 decreased by 2% to $39.41 million from $40.16 million in the year 2009. The decrease was mainly due to the increase in the procurement cost of coal bed methane in Henan province. In fiscal year 2010, gross margin decreased by 5% to 44% from 49% in 2009. Operating expenses in the fiscal year 2010 increased by 35% to $20.39 million from $15.11 million in the year 2009. This increase was mainly due to four additional CNG fueling stations were acquired in 2010 and the subsidiaries of our variable interest entity in Hubei and Jinbian were in the initiation stage with material management expenses.

Income from operations decreased by 24% to $19.03 million from $25.05 million in the year 2009. Operating margin decreased by 10% to 21% from 30.9% in the prior year.

Net income for fiscal year 2010 decreased by 9% to $17.22 million, or $0.80 per diluted share, from 18.83 million, or $$1.12 per diluted share, in the fiscal year 2009. Excluding the impact of the non-cash expenses explained above, net income would have been $15.43 million, or $0.72 per diluted share, representing a year-over-year decrease of 24%.

Balance Sheet

As of December 31, 2010, the Company had cash and cash equivalents of $10.05 million, compared with $36.34 million as of September 30, 2010, $42.61 million as of June 30, 2010, and $48.18 million as of December 31, 2009.

Mr. Ji concluded: "We remain optimistic about the market growth and potentials for natural gas usage in the developing Shaanxi and Henan provinces. We will continue to focus on growing our business strategically by steadily expanding our CNG customer base, especially focusing on sales to fleet vehicles and taxis. We are confident that our strong balance sheet, our current infrastructure, technical expertise and strategic CNG expansions will help sustain our steady growth and profitability.

We also continue to remain optimistic about the long-term opportunities in the LNG market as China aims to increase natural gas usage. 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 emerging LNG market. We believe that once in full operations, our LNG business will enable us to further strengthen our market position, accelerate our growth and will bring greater value to our shareholders."

Conference Call

Management will hold a conference call on Wednesday, March 16, 2011 at 8:00 a.m. ET (5:00 a.m. Pacific) to discuss these fourth quarter and year end results.

To participate in the call please dial (800) 860-2442, or (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 for one week from 11:00 a.m. March 16, 2011, ET until 9:00 a.m. ET, March 24, 2011. The number for the replay is (877) 344-7529, or (412) 317-0088 for international calls; the pass code for the replay is 449305. In addition, a recording of the call will be available on 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 27 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.

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 TWELVE MONTHS ENDED DECEMBER 31, 2010 AND 2009







Three months ended

Twelve months ended


DECEMBER 31

DECEMBER 31


2010

2009

2010

2009






   GAAP Net Income

5,079,756

6,118,889

17,220,372

18,830,787






   Add:





     Amortization of discount





      on senior notes




280,250

     Amortization of deferred





      offering costs




63,940

     Change in fair





      value of warrants

(285,569)

(442,432)

(1,793,572)

1,031,330






   Non-GAAP Net Income

4,794,187

5,676,457

15,426,800

20,206,307

    (Excludes all non-cash items)










   Weighted average shares outstanding





     Basic

21,321,904

21,183,904

21,268,972

16,624,294

     Diluted

21,373,949

21,697,822

21,430,867

16,830,907






   GAAP Basic EPS

0.24

0.29

0.81

1.13

   Add:





     Amortization of discount on senior notes

0.0000

0.0000

0.0000

0.0169











     Amortization of deferred offering costs

0.0000

0.0000

0.0000

0.0038






     Change in fair value of warrants

(0.0134)

(0.0209)

(0.0843)

0.0620

   Non-GAAP Basic EPS

0.23

0.27

0.73

1.21






   GAAP Diluted EPS

0.24

0.28

0.80

1.12

   Add:










     Amortization of discount on senior notes

0.0000

0.0000

0.0000

0.0167






     Amortization of deferred offering costs

0.0000

0.0000

0.0000

0.0038






     Change in fair value of warrants

(0.0134)

(0.0204)

(0.0837)

0.0613

   Non-GAAP Diluted EPS

0.23

0.26

0.72

1.20



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

CONSOLIDATED BALANCE SHEETS






December, 31


December, 31






2010


2009









ASSETS

CURRENT ASSETS:






Cash and cash equivalents

$

10,046,249

$

48,177,794


Accounts receivable, net


1,821,595


1,289,116


Other receivable


188,364


709,741


Employee advances


302,532


338,689


Inventories



815,884


841,837


Advances to suppliers


8,434,995


596,868


Prepaid expense and other current assets


4,249,353


1,076,915


Loan receivable


-


293,400



Total current assets


25,858,972


53,324,360









Investment in unconsolidated joint ventures


1,517,000


1,467,000

Property and equipment, net


82,769,171


72,713,012

Construction in progress


116,569,871


52,918,236

Deferred financing cost, net


927,166


1,336,998

Other assets



19,806,375


15,854,910










TOTAL ASSETS

$

247,448,555

$

197,614,516









LIABILITIES AND STOCKHOLDERS' EQUITY  









CURRENT LIABILITIES:






Notes payable - current maturities


2,551,306




Accounts payable and accrued liabilities

$

5,428,669

$

2,162,049


Unearned revenue


2,376,563


1,813,641


Accrued interest


646,528


786,052


Taxes payable



2,377,765


1,901,577



Total current liabilities


13,380,831


6,663,319









LONG TERM LIABILITIES:






Notes payable, net of current portion


28,064,363


27,292,287


Long-term debt


18,204,000




Derivative liabilities - warrants


17,752,066


19,545,638



Total long term liabilities


64,020,429


46,837,925












Total liabilities


77,401,260


53,501,244









COMMITMENTS AND CONTINGENCIES













STOCKHOLDERS' EQUITY:






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

-


-


Common stock, par value $0.0001 per share, 45,000,000 authorized, 21,321,904 and 21,183,904 issued and outstanding at December 31,2010 and 2009, respectively


2,132


2,118


Additional paid-in capital


81,611,763


79,851,251


Accumulative other comprehensive gain


15,667,145


8,714,019


Statutory reserves


7,918,634


5,962,695


Retained earnings


64,847,621


49,583,189



Total stockholders' equity


170,047,296


144,113,272










TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

247,448,555

$

197,614,516




CHINA NATURAL GAS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME








Years Ended December 31,







2010


2009


2008











Revenue










Natural gas


$

71,367,502


62,236,342

$

55,746,893


Gasoline



7,522,412


6,384,172


4,616,052


Installation and other


11,063,709


12,445,604


7,357,714



Total



89,953,623


81,066,118


67,720,659











Cost of revenue









Natural gas



38,651,298


29,478,854


27,234,508


Gasoline



7,050,003


5,993,207


4,277,458


Installation and other


4,838,858


5,432,978


3,469,671



Total



50,540,159


40,905,039


34,981,637











Gross profit



39,413,464


40,161,079


32,739,022











Operating expenses









Selling



13,254,923


10,607,596


7,651,948


General and administrative


7,131,543


4,500,676


4,024,882



Total



20,386,466


15,108,272


11,676,830











Income from operations


19,026,998


25,052,807


21,062,192











Other income (expense)








Interest income



418,763


125,287


209,502


Interest expense



0


(747,172)


(2,228,244)


Other income (expense), net


(137,817)


(186,805)


111,859


Change in fair value of warrants


1,793,572


(1,031,330)


0


Foreign currency exchange loss


(88,613)


(69,077)


(397,299)



Total non-operating income

1,985,905


(1,909,097)


(2,304,182)











Income before income tax


21,012,903


23,143,710


18,758,010











Provision for income tax


3,792,531


4,312,923


3,567,642






 


 



Net income



17,220,372


18,830,787


15,190,368











Other comprehensive income








Foreign currency translation gain


6,953,126


52,959


5,184,035

Comprehensive income

$

24,173,498


18,883,746


20,374,403











Weighted average shares outstanding







Basic



21,268,972


16,624,294


14,600,154


Diluted



21,430,867


16,830,907


14,645,070











Earnings per share









Basic


$

0.81


1.13


1.04


Diluted


$

0.80


1.12


1.04




CHINA NATURAL GAS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS








Years ended December 31,








2010


2009


2008













CASH FLOWS FROM OPERATING ACTIVITIES:









Net income



$

17,220,372

$

18,830,787


15,190,368


Adjustments to reconcile net income to net cash









provided by operating activities:










Depreciation and amortization



6,644,843


5,571,772


3,474,905



Recovery of doubtful accounts



(149,859)


-


-



Loss on disposal of equipment



123,553


21,373


24,806



Amortization of discount on senior notes



-


280,250


1,004,677



Amortization of financing costs



-


63,940


227,989



Options issued for services



66,024


66,535


66,704



Stock based compensation



1,018,303


158,517


-



Change in fair value of warrants



(1,793,572)


1,031,330


-



Change in assets and liabilities:











Accounts receivable



(326,573)


(387,948)


(568,370)




Other receivables



531,970


(644,083)


247,349




Employee advances



46,174


(6,425)


(55,747)




Inventories



53,292


(322,099)


(267,470)




Advances to suppliers



(7,624,015)


240,724


(125,896)




Prepaid expense and other current assets



(2,973,865)


(306,445)


(642,857)




Accounts payable and accrued liabilities



3,144,057


2,526


339,168




Unearned revenue



488,687


869,239


583,940




Accrued interest



(139,524)


(75,062)


861,114




Taxes payable



372,136


38,991


556,121


Net cash provided by operating activities



16,702,003


25,433,922


20,916,801













CASH FLOWS FROM INVESTING ACTIVITIES:










Payment on investment in unconsolidated joint ventures



-


(1,467,000)


-



Purchase of property and equipment



(6,060,287)


(1,074,066)


(43,225,673)



Proceeds from sales of property and equipment



96,141


41,325


194,891



Loan receivable



(14,379,768)


-


-



Proceeds from loan receivable



14,675,648


-


-



Proceeds from short term investments



-


-


250,821



Additions to construction in progress



(44,830,638)


(28,020,498)


(19,012,750)



Return (payment) of acquisition deposits



1,627,340


(283,200)


-



Prepayment on long-term assets



(10,274,357)


(6,139,766)


(5,729,833)



Payment for acquisition of business



(3,077,031)


-


-



Payment for intangible assets



(6,159,474)


(161,486)


(53,826)



Payment for land use rights



(4,283,789)


(432,566)


(30,354)



Excess of cost over fair value of net assets acquired



(505,225)


-


-


Net cash used in investing activities



(73,171,441)


(37,537,257)


(67,606,724)













CASH FLOWS FROM FINANCING ACTIVITIES:










Proceeds from the issuance of common stock



-


57,607,813


-



Proceeds from exercise of stock options



676,200


-


-



Proceeds from Long-term debt



17,752,800


-


40,000,000



Debt issuance costs



-


-


(2,122,509)



Stock issuance costs



-


(3,237,454)


-


Net cash provided by financing activities



18,429,000


54,370,359


37,877,491













Effect of exchange rate changes on cash and cash equivalents



(91,107)


56,387


1,375,086













NET (DECREASE) INCREASE IN CASH & CASH EQUIVALENTS

(38,131,545)


42,323,411


(7,437,346)













CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR


48,177,794


5,854,383


13,291,729













CASH AND CASH EQUIVALENTS, END OF YEAR


$

10,046,249

$

48,177,794


5,854,383













SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:






Interest paid, including capitalized interest


$

2,908,661

$

503,845


902,777


Income taxes paid


$

3,863,788

$

4,178,066


2,998,627













Non-cash transactions for investing and financing activities:









Construction in progress transferred to property and equipment


$

5,057,958

$

-


823,464


Prepayment on long term assets transferred to property and equipment


18,431,526


-


405,630


Purchase of equipment through accounts payable



-

$

1,234,603


-


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

$

3,733,214

$

2,836,324


1,164,618




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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