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

Nov 14, 2011, 13:11 ET from China Natural Gas, Inc.

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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