BEIJING, Aug. 18 /PRNewswire-Asia-FirstCall/ -- Duoyuan Global Water Inc. (NYSE: DGW) ("Duoyuan" or the "Company"), a leading China-based domestic water treatment equipment supplier, today announced unaudited financial results for the second quarter of 2010. The Company will hold a conference call at 8:00 am ET. Dial in details may be found at the end of the release.
Second Quarter 2010 Financial Highlights -- Revenue increased 37.4% to RMB293.6 million ($43.3 million(1)) from RMB213.7 million in the prior year period. -- Gross profit increased 34.1% to RMB140.4 million ($20.7 million) from RMB104.7 million in the prior year period. -- Gross margin was 47.8% compared to 49.0% in the prior year period. -- Diluted earnings per ADS was $0.45. Each ADS represents two of the Company's ordinary shares. (1) This press release contains translations of certain Renminbi amounts into US dollars at specified rates solely for the convenience of readers. Unless otherwise noted, all translations from Renminbi to US dollars for the quarter ended June 30, 2010, were made at a rate of RMB6.7815 to USD1.00, the noon buying rate in effect on June 30, 2010 in the City of New York for cable transfers in Renminbi per US dollar as certified for customs purposes by the Federal Reserve Bank of New York. Duoyuan Global Water makes no representation that the Renminbi or US dollar amounts referred to in this press release could have been or could be converted into US dollars or Renminbi, at any particular rate or at all.
Mr. Wenhua Guo, the Company's Chairman and Chief Executive Officer, stated, "Our second quarter results demonstrate our sustained growth and presence in China's water treatment industry as well as contributions from our new, higher margin product launches. We will continue to drive growth through new products developed through both our research and development efforts as well as partnership agreements and opportunities. Moving forward, we are confident in our ability to maintain our growth trajectory through our comprehensive and high quality product offerings, our low cost manufacturing base, our extensive distribution network and our focus on continually developing new products."
Second Quarter 2010 Financial Performance
Second quarter 2010 revenue increased by 37.4% to RMB293.6 million ($43.3 million) from RMB213.7 million in the comparable period of 2009. Revenues were calculated net of sales rebates, which were flat compared to the prior year period at RMB0.9 million ($0.1 million) in the second quarter of 2010.
Revenue from water reuse equipment, which includes wastewater treatment equipment, increased by 45.3% to RMB126.6 million ($18.7 million) in the second quarter of 2010 compared to RMB87.2 million in the second quarter of 2009, due to increased demand for the Company's UV shelving disinfection systems, online testing equipment, sludge screws, flocculant preparation systems and belt filter press machines.
Revenue from water purification equipment increased by 36.2% to RMB59.0 million ($8.7 million) in the second quarter of 2010 compared to RMB43.3 million in the prior year period, as the Company's ozone generators, central water purifiers and UV water purifiers continued to be well-received in the marketplace.
Revenue from water conservation equipment, which includes circulating water treatment equipment, increased by 28.4% to RMB102.6 million ($15.1 million) in the second quarter of 2010 compared to RMB79.9 million in the second quarter of 2009, driven by continued demand for the Company's circulating central water processors, fully automatic filters and electronic water conditioners.
Revenue from spare parts increased by 48.1% to RMB6.3 million ($0.9 million), which was 2.2% of revenue in the second quarter of 2010, compared to RMB4.3 million, which was 2.0% of revenue in the second quarter of 2009.
For the second quarter of 2010, gross profit increased by 34.1% to RMB140.4 million ($20.7 million) from RMB104.7 million in the prior year period. Gross margin for the second quarter of 2010 was 47.8%, compared to 49.0% in the second quarter of 2009 and 46.6% in the first quarter of 2010. These gross margins may be attributed to changing raw material costs as well as fluctuations in the Company's mix of products sold as new higher margin products are introduced.
Operating income was RMB100.7 million ($14.8 million) in the second quarter of 2010 compared to a loss from operations of RMB2.2 million in the comparable period of 2009, primarily reflecting RMB90.5 million of non-cash share-based compensation expense in the prior year period.
Selling expenses, up 94.9% year over year to RMB26.1 million ($3.9 million), reflected the Company's continued efforts to solidify its unique competitive position within China's fragmented water treatment equipment industry. General and administrative expenses were approximately RMB8.5 million ($1.3 million) in the second quarter of 2010, reflecting a normalized cost structure commensurate with overall business growth. Sequentially, operating expenses increased only 5.6% from the first quarter of 2010.
The Company repaid a RMB20 million ($2.9 million) short-term bank note in the first quarter of 2010. As a result, the Company had no interest expense in the second quarter of 2010 compared to RMB0.3 million in the second quarter of 2009.
Provision for income taxes in the second quarter of 2010 increased to RMB26.3 million ($3.9 million), an effective tax rate of 25.9%, from RMB22.9 million in the prior year period.
Net income was RMB75.2 million ($11.1 million) in the second quarter of 2010, compared to a net loss of RMB25.1 million in the prior year's second quarter. Diluted earnings per share was RMB1.53 ($0.22) in the second quarter of 2010, compared to a loss of RMB0.83 in the second quarter of 2009. Diluted earnings per ADS was RMB3.05 ($0.45) in the second quarter of 2010, compared to a loss of RMB1.66 per ADS in the prior year period.
During the second quarter of 2010, the Company recorded non-cash share-based compensation expense of approximately RMB0.9 million ($0.1 million), or approximately $0.01 per ADS, compared to RMB90.5 million in the second quarter of 2009. Excluding share-based compensation, non-GAAP net income increased by 16.6% to RMB76.2 million ($11.2 million) in the second quarter of 2010, from non-GAAP net income of RMB65.3 million in the second quarter of 2009. Non-GAAP diluted earnings per share was RMB1.54 ($0.23) in the second quarter of 2010, compared to RMB2.16 in the second quarter of 2009. Non-GAAP diluted earnings per ADS was RMB3.09 ($0.46) in the second quarter of 2010, compared to RMB4.31 in the prior year period. Please refer to the non-GAAP presentation provided below for a period-to-period comparison excluding non-cash share-based compensation expense.
The Company had approximately 49.3 million weighted average diluted shares outstanding for the period ended June 30, 2010, compared to 30.3 million weighted average diluted shares outstanding for the period ended June 30, 2009.
Six Months Ended June 30, 2010 Financial Performance
For the six months ended June 30, 2010, revenue increased by 35.8% to RMB454.1 million ($67.0 million) from RMB334.4 million for the six months ended June 30, 2009. During this same period, gross profit increased by 35.3% to RMB215.3 million ($31.7 million) from RMB159.2 million in the prior year period. Operating income increased to RMB137.9 million ($20.3 million) from RMB37.5 million in the prior year period. Net income was RMB102.6 million ($15.1 million) compared to RMB3.8 million in the prior year period. Diluted earnings per share was RMB2.12 ($0.31) in the six months ended June 30, 2010, compared to RMB0.13 in the six months ended June 30, 2009. Diluted earnings per ADS was RMB4.24 ($0.63) in the six months ended June 30, 2010, compared to RMB0.25 per ADS in the prior year period.
For the six months ended June 30, 2010, the Company recorded non-cash share-based compensation expense of approximately RMB1.9 million ($0.3 million), or approximately $0.01 per ADS, compared to RMB90.5 million in the prior year period. Excluding share-based compensation, non-GAAP net income increased by 10.8% to RMB104.4 million ($15.4 million) from RMB94.3 million in the prior year period. Non-GAAP diluted earnings per share was RMB2.16 ($0.32) for the first six months of 2010, compared to RMB3.13 in the prior year period. Non-GAAP diluted earnings per ADS was RMB4.32 ($0.64) for the first six months of 2010, compared to RMB6.25 in the prior year period. Please refer to the non-GAAP presentation provided below for a period-to-period comparison excluding non-cash share-based compensation expense. Weighted average diluted shares outstanding was approximately 48.3 million for the six months ended June 30, 2010, up from 30.2 million in the prior year period.
As of June 30, 2010, the Company had cash and bank deposits of RMB1.4 billion ($209.6 million), compared to RMB918.7 million as of December 31, 2009. Cash flows provided by operating activities for the six months ended June 30, 2010 were approximately RMB87.3 million ($12.9 million). Depreciation and amortization expense was RMB7.5 million ($1.1 million) for the six months ended June 30, 2010. Cash flows used in investing activities were RMB83.9 million ($12.4 million) for the period, reflecting the Company's progress on its new capital expenditures plan begun during the second quarter. Cash flows provided by financing activities were approximately RMB504.3 million ($74.4 million), reflecting RMB524.3 million raised in a follow-on offering of the Company's ADSs as well as RMB20.0 million of debt repaid during the first quarter of 2010.
Mr. Stephen C. Park, Chief Financial Officer, stated, "As we move forward through 2010, our competitive position remains strong and we are poised for future growth supported by our trusted brand name and extensive distribution network. With this in mind, we expect to generate revenue of approximately RMB326 million in the third quarter of 2010."
This forecast reflects the Company's current and preliminary view, which is subject to change.
The Company will hold a conference call at 8:00 am ET on August 18, 2010 to discuss second quarter results. Listeners may access the call by dialing:
United States toll free: 1-866-519-4004 China toll free: 400-6208038 Hong Kong toll free: 800-930346 United Kingdom toll free: 0808-2346646 International: 1-718-354-1231 Conference ID: 87940948
A telephone replay will become available beginning two hours after the conclusion of the call and will be available through August 24, 2010. Listeners may access the replay by dialing:
United States toll free: 1-866-214-5335 International: 1-718-354-1232 Conference ID: 87940948
Preregistration and a webcast will also be available through the Company's website at http://www.duoyuan-hq.com .
Non-GAAP net income represents net income before share-based compensation expense. The Company believes that non-GAAP net income is useful to both management and investors in evaluating the Company's operating performance compared with that of other companies in its industry. The calculation of non-GAAP net income allows the Company to compare its operating results with those of other companies without giving effect to expenses related to share-based compensation, which may vary for different companies for reasons unrelated to the overall operating performance of a company's business.
Non-GAAP net income is not a measure of performance under accounting principles generally accepted in the United States (U.S. GAAP). The Company includes it in this presentation in order to:
-- improve transparency for investors; -- assist investors in their assessment of the Company's operating performance; -- facilitate comparisons to historical performance; -- ensure that this measure is fully understood in light of how the Company evaluates its operating results; and -- properly define the metric used and confirm its calculation.
Non-GAAP net income is not meant to be considered in isolation or as a substitute for items appearing on the Company's financial statements prepared in accordance with U.S. GAAP. Rather, the non-GAAP measure should be used as a supplement to U.S. GAAP results to assist the reader in better understanding the operational performance of the Company. The Company cautions that this measure is not a defined term under U.S. GAAP and its definition should be carefully reviewed and understood by investors. The Company recognizes that the usefulness of non-GAAP net income has certain limitations, including:
-- Non-GAAP net income does not include share-based compensation expense. Because the Company periodically has granted, and expects to continue to grant, options and restricted share awards to its employees, share- based compensation expense is a necessary element of the Company's costs and ability to generate profits and cash flows. Therefore, any measure that excludes share-based compensation expense may have material limitations; and -- the manner in which the Company calculates non-GAAP net income may differ from that of other companies, which limits its usefulness as a comparative measure.
The Company compensates for the foregoing limitations by using non-GAAP net income as a comparative tool, together with U.S. GAAP measurements, to assist in the evaluation of its operating performance. Please refer to the non-GAAP reconciliation table for a reconciliation of non-GAAP net income to net income, which is the most directly comparable U.S. GAAP financial measure as well as a reconciliation of non-GAAP earnings per share and non-GAAP earnings per ADS to earnings per share and earnings per ADS, respectively.
About Duoyuan Global Water Inc.
Duoyuan Global Water Inc. is a leading China-based domestic water treatment equipment supplier. Duoyuan's product offerings address key steps in the water treatment process, such as filtration, water softening, water-sediment separation, aeration, disinfection and reverse osmosis. Duoyuan offers a comprehensive set of complementary products across three product categories: water conservation, including circulating water treatment; water purification; and water reuse treatment, including wastewater treatment. The Company has an extensive local distribution network, which provides proximity to end-user customers and responsiveness to local market demand. Learn more at http://www.duoyuan-hq.com .
Cautionary Note Regarding Forward-Looking Statements
This press release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, including certain plans, expectations, goals, and projections, which are subject to numerous assumptions, risks, and uncertainties. These forward-looking statements may include, but are not limited to, statements containing words such as "may," "could," "would," "plan," "anticipate," "believe," "estimate," "predict," "potential," "expects," "intends" and "future" or similar expressions. These forward-looking statements speak only as of the date of this press release and are subject to change at any time. These forward-looking statements are based upon management's current expectations and are subject to a number of risks, uncertainties and contingencies, many of which are beyond the Company's control that may cause actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. The Company's actual results could differ materially from those contained in the forward-looking statements due to a number of factors, including those described under the heading "Risk Factors" in the Company's final prospectus, dated January 27, 2010, filed with the Securities and Exchange Commission, and in documents subsequently filed by the Company from time to time with the Securities and Exchange Commission. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
For more information, please contact: ICR, LLC In the U.S.: Ashley M. Ammon Tel: +1-646-277-1227 In China: Wen Lei Zheng Tel: +86-10-6599-7968 DUOYUAN GLOBAL WATER INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME THREE MONTHS ENDED JUNE 30, 2009 2010 2010 RMB RMB US$ REVENUE 213,729,501 293,625,351 $43,297,995 COST OF REVENUE 109,030,863 153,184,999 22,588,660 GROSS PROFIT 104,698,638 140,440,352 20,709,335 RESEARCH AND DEVELOPMENT EXPENSES 4,159,454 5,111,882 753,798 SELLING EXPENSES 13,405,527 26,131,210 3,853,308 GENERAL AND ADMINISTRATIVE EXPENSES 89,325,700 8,510,935 1,255,023 OPERATING INCOME (2,192,043) 100,686,325 14,847,206 INTEREST EXPENSE (298,540) -- -- OTHER INCOME 245,370 878,405 129,529 INCOME BEFORE INCOME TAXES (2,245,213) 101,564,730 14,976,735 PROVISION FOR INCOME TAXES 22,888,945 26,346,406 3,885,041 NET INCOME (25,134,158) 75,218,324 $11,091,694 Earnings per share: Basic (0.83) 1.53 $0.23 Diluted (0.83) 1.53 $0.22 Earnings per ADS: Basic (1.66) 3.06 $0.45 Diluted (1.66) 3.05 $0.45 Weighted average number of shares outstanding: Basic 30,301,157 49,222,631 49,222,631 Diluted 30,307,415 49,313,885 49,313,885 SIX MONTHS ENDED JUNE 30, 2009 2010 2010 RMB RMB US$ REVENUE 334,375,190 454,138,273 $66,967,230 COST OF REVENUE 175,208,909 238,842,752 35,219,752 GROSS PROFIT 159,166,281 215,295,521 31,747,478 RESEARCH AND DEVELOPMENT EXPENSES 9,269,134 9,584,021 1,413,260 SELLING EXPENSES 22,264,532 50,711,589 7,477,931 GENERAL AND ADMINISTRATIVE EXPENSES 90,154,212 17,103,266 2,522,048 OPERATING INCOME 37,478,403 137,896,645 20,334,239 INTEREST EXPENSE (624,910) (84,370) (12,441) OTHER INCOME 442,332 1,320,244 194,683 INCOME BEFORE INCOME TAXES 37,295,825 139,132,519 20,516,481 PROVISION FOR INCOME TAXES 33,496,807 36,564,781 5,391,842 NET INCOME 3,799,018 102,567,738 $15,124,639 Earnings per share: Basic 0.13 2.13 $0.31 Diluted 0.13 2.12 $0.31 Earnings per ADS: Basic 0.25 4.25 $0.63 Diluted 0.25 4.24 $0.63 Weighted average number of shares outstanding: Basic 30,151,410 48,216,222 48,216,222 Diluted 30,154,557 48,332,648 48,332,648 DUOYUAN GLOBAL WATER INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS December 31, June 30, June 30, 2009 2010 2010 (AUDITED) (UNAUDITED) (UNAUDITED) RMB RMB US$ A S S E T S CURRENT ASSETS: Cash 918,667,261 1,421,516,236 $209,616,786 Accounts receivable 197,087,701 240,292,615 35,433,549 Inventories, net of reserve for obsolescence 33,419,900 93,161,309 13,737,567 Other receivables 676,376 334,014 49,254 Other current assets 1,344,702 -- -- Deposits 5,605,530 9,143,125 1,348,245 Total current assets 1,156,801,470 1,764,447,299 260,185,401 PLANT AND EQUIPMENT, net 144,755,275 147,977,903 21,820,822 OTHER ASSETS: Prepaid leases 21,957,806 21,695,963 3,199,287 Deposits - long term 44,378,173 109,616,655 16,164,072 Deferred tax assets 4,694,347 4,694,347 692,228 Total other assets 71,030,326 136,006,965 20,055,587 Total assets 1,372,587,071 2,048,432,167 $302,061,810 L I A B I L I T I E S A N D S H A R E H O L D E R S' E Q U I T Y CURRENT LIABILITIES: Notes payable 20,000,000 -- $-- Accounts payable 27,913,596 88,620,669 13,068,004 Other payables 19,722,465 21,846,458 3,221,479 Income taxes payable 15,423,292 24,520,010 3,615,720 Total current liabilities 83,059,353 134,987,137 19,905,203 SHAREHOLDERS' EQUITY: Ordinary shares, US$0.000033 par value: Authorized shares - 1,500,000,000; Issued and outstanding - 43,702,631 shares at December 31, 2009 and 49,222,631 shares at June 30, 2010 10,384 11,627 1,715 Additional paid-in capital 861,292,062 1,387,442,873 204,592,328 Statutory reserves 57,319,979 68,108,532 10,043,284 Retained earnings 370,905,293 462,684,478 68,227,454 Accumulated other comprehensive loss -- (4,802,480) (708,174) Total shareholders' equity 1,289,527,718 1,913,445,030 282,156,607 Total liabilities and shareholders' equity 1,372,587,071 2,048,432,167 $302,061,810 DUOYUAN GLOBAL WATER INC. AND SUBSIDIARIES RECONCILIATION OF GAAP TO NON-GAAP STATEMENTS OF INCOME ITEMS THREE MONTHS ENDED JUNE 30, 2009 2010 2010 RMB RMB US$ GAAP NET INCOME (25,134,158) 75,218,324 $11,091,694 Share-based compensation 90,471,254 945,599 139,438 NON-GAAP NET INCOME 65,337,096 76,163,923 $11,231,132 GAAP Earnings per share - diluted (0.83) 1.53 $0.22 Share-based compensation 2.99 0.01 0.01 NON-GAAP Earnings per share - diluted 2.16 1.54 $0.23 GAAP Earnings per ADS - diluted (1.66) 3.05 $0.45 Share-based compensation 5.97 0.04 0.01 NON-GAAP Earnings per ADS - diluted 4.31 3.09 $0.46 Weighted average number of shares outstanding - diluted 30,307,415 49,313,885 49,313,885 SIX MONTHS ENDED JUNE 30, 2009 2010 2010 RMB RMB US$ GAAP NET INCOME 3,799,018 102,567,738 $15,124,639 Share-based compensation 90,471,254 1,878,665 277,028 NON-GAAP NET INCOME 94,270,272 104,446,403 $15,401,667 GAAP Earnings per share - diluted 0.13 2.12 $0.31 Share-based compensation 3.00 0.04 0.01 NON-GAAP Earnings per share - diluted 3.13 2.16 $0.32 GAAP Earnings per ADS - diluted 0.25 4.24 $0.63 Share-based compensation 6.00 0.08 0.01 NON-GAAP Earnings per ADS - diluted 6.25 4.32 $0.64 Weighted average number of shares outstanding - diluted 30,154,557 48,332,648 48,332,648
SOURCE Duoyuan Global Water Inc.