China Natural Gas Announces Second Quarter 2011 Financial Results

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.

SOURCE China Natural Gas, Inc.