NF Energy Saving Corporation Announces Second Quarter 2010 Results
-- Revenue for the quarter increased 38.3% over the prior year period to $7.2 million
-- Net income for the quarter increased 69.4% over the prior year period to $1.4 million
SHENYANG, Liaoning, China, Aug. 16 /PRNewswire-Asia/ -- NF Energy Saving Corporation. (OTC Bulletin Board: NFEC) ("NF Energy" or the "Company"), a leading energy saving services and solutions provider for China's power, petrochemical, coal, metallurgy, construction, and municipal infrastructure development industries, today reported financial results for its second quarter ended June 30, 2010.
Second Quarter 2010 Highlights
-- Revenues increased 38.3% year-over-year to $7.2 million
-- Gross profit rose 32.7% year-over-year to $2.0 million, representing a
gross margin of 28.0% compared to 29.2% in the year ago period
-- Operating income grew 89.3% year-over-year to $1.8 million
-- GAAP net income increased 69.4% year-over-year to $1.4 million,
representing a net margin of 19.0% compared to 15.5% a year ago
-- Net income per diluted share was $0.10 compared to $0.06 in the same
period last year
"We are pleased to report a strong second quarter performance for 2010, which we believe will continue through the remainder of this year," commented Mr. Gang Li, Chief Executive Officer of NF Energy Saving Corporation. "In addition to the strong financial performance, we have begun the expansion of our new manufacturing facility which we anticipate will be completed in September, 2010, increasing annual capacity to 20,000 tons of flow control equipment from our current capacity of 6,000 tons. We have also begun to achieve a change in our business mix towards energy conservation service projects, growing this segment's top line by 440.2% compared to the prior year period. We expect that with the increase in production capacity, coupled with steadily growing market demand, we are well positioned to gain market share, further strengthening the Company's leadership in the PRC intelligent energy efficient flow control market."
Second Quarter 2010 Results
Revenue for the second quarter of 2010 increased 38.3% to $7.2 million, from $5.2 million in the same period of 2009. The growth in revenue is primarily attributable to a significant increase in demand in the Company's consulting service segment. The Company anticipates that revenue from the energy conservation projects and services segments will represent 30% of total revenue for fiscal year 2010, up from 14% of total revenue in 2009.
Gross profit for the second quarter of 2010 was $2.0 million, up 32.7%, from $1.5 million in the second quarter of 2009. The increase in gross profit was largely attributable to higher revenues and lower raw material prices compared to the prior year quarter. Gross margin for the second quarter of 2010 was 28.0% compared to 29.2% during the same period of 2010. The decline in gross margin was largely the result of a lower gross margin in the services segment due to the change in Company's services segment structure compared to the prior year quarter.
Operating expenses in the second quarter declined 62.4% to $0.2 million, from $0.6 million in the same period of the prior year. Lower expenses primarily reflected zero stock based compensation during the period, and relatively lower sales and marketing expenses. General and administrative expenses were $198,770 for the three months ended June 30, 2010 which was largely unchanged when compared to the $194,053 in general and administrative expenses incurred in the prior year period. As a percentage of revenue, total operating expenses declined to 3.0% from 10.9% in the second quarter of 2009.
Income from operations for the second quarter of 2010 was $1.8 million, an 89.3% increase from the $1.0 million of income from operations generated in the year ago period. Operating margins rose to 25.1% from 18.3% in the year ago period.
Net income for the 2010 second quarter was $1.4 million, or $0.10 per diluted share compared to net income of $0.8 million or $0.06 per diluted share in the second quarter of 2009.
Financial Condition
As of June 30, 2010, the Company had $0.5 million in cash and cash equivalents compared to $0.2 million in cash and cash equivalents on December 31, 2009.
The Company generated $1.9 million in net cash from operating activities for the six months ending June 30, 2010, compared to $2.7 million in the same period of 2009.
Recent Events and Updates
On July 21, 2010, NF Energy was awarded the designation of "China's Energy Conservation Services Advanced Company" by the National Development and Reform Commission and China Energy Conservation Service Commission, in recognition of the significant progress that management has made in working to achieve the Company's goal of becoming the leading energy saving services company in China.
On July 27, 2010, NF Energy signed a two year unsecured credit facility with a domestic bank to borrow up to RMB 40 million ($5.88 million) over a 24 month period ending June 28, 2012. Drawings under the facility will be used to help NF Energy to complete its new manufacturing plant, increasing capacity from 6,000 tons to 20,000 tons of flow control equipment per year, and further help the Company to promote future business development.
On August 2, 2010, NF Energy signed a contract for inlet energy-efficient flow control equipment and affiliated equipment and services with Gansu Double Win Hydropower Investment Company in Gansu Province, China. The Company expects to generate U.S. GAAP revenue of RMB 2.21 million (approximately $326,000) for the duration of the contract. The contract represents an important first step in the Company's goal of penetrating the western region of the market in China as the Company seeks to expand its distribution network and accelerate growth.
On August 9, 2010, NF Energy signed a strategic partnership with Dazhong Valve Group Co., Ltd., a specialized manufacturer of industrial valves. Both parties agreed to cooperate in the areas of marketing, distribution, material sourcing, product research and development, quality control and mutual intellectual property protection. After extensive due diligence and product testing, each party has agreed to issue an advanced product certification for the other party's product line, enabling the two firms to cross-promote their product portfolios. The agreement will enable NF energy to expand its product portfolio into the high-pressure valve category, further strengthening its competitive position in the petrochemical industry.
Guidance and Business Outlook
NF Energy expects full fiscal year 2010 revenue to be in the range of $28 million to $30 million and net income to be in the range of $5.6 million to $6.0 million. The estimate does not include any possible additional expenses arising from the Company's upgrade to a major exchange or financing expense. The Company's performance is expected to follow its typical pattern of a stronger third and fourth quarter due to favorable weather conditions at many of its customer sites, absence of holidays and stronger seasonal customer ordering patterns. In order to meet the expected increase in demand for energy efficiency as a result of the passage of China's Energy Conservation Law, NF Energy plans to increase capacity to 20,000 tons of flow control equipment per year by completing the construction of its new energy manufacturing facility in September 2010. Successful on time completion is also assumed in the aforementioned financial guidance.
"A series of policies related to energy conservation projects and tax benefits issued by the Chinese government associated with those projects indicate that low carbon emission and clean energy targets will be a new impetus for economic development, driving construction of innovative industrial systems," commented Mr. Gang Li, Chief Executive Officer of NF Energy. "In order to capitalize on these trends, NF Energy will further develop energy conservation projects to significantly grow all of its lines of business for the remainder of 2010."
Conference Call
NF Energy will host a conference call at 8:00 a.m. ET on Monday, August 16, 2010, to discuss the Company's second quarter 2010 financial results. Hosting the call will be Mr. Gang Li, Chief Executive Officer, and Ms. Lihua Wang, Chief Financial Officer. The Company plans to distribute its earnings press release prior to the call.
To participate in the live conference call, please dial the following number five to ten minutes prior to the scheduled conference call time: 877-533-0441. International callers should dial 706-634-7331. The conference call pass code is 92241698.
If you are unable to participate in the call at this time, a replay will be available for 14 days starting on Monday, August 16, 2010 at 09:00 a.m. ET. To access the replay, dial 800-642-1687. International callers should dial 706-645-9291. The conference pass code is 92241698.
About NF Energy Saving Corporation
NF Energy Saving Corporation (OTCBB: NFEC) is a China-based provider of integrated energy conservation solutions utilizing energy-saving equipment, technical services and energy management re-engineering project operations to provide energy saving services to clients. The Company's customers are mainly concentrated in the electrical generation (large-scale thermal power generation, hydroelectric power, wind power, and nuclear power), water supply, and heat supply industries. The majority of revenues are from energy efficient flow control equipment and energy efficiency projects. For more information, visit http://www.nfenergy.com .
Safe Harbor Statement
The statements contained herein that are not historical facts are considered "forward-looking statements." Such forward-looking statements may be identified by, among other things, the use of forward-looking terminology such as "believes," "expects," "may," "will," "should," or "anticipates" or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. In particular, statements regarding the efficacy of investment in research and development are examples of such forward-looking statements. The forward-looking statements include risks and uncertainties, including, but not limited to, the effect of political, economic, and market conditions and geopolitical events; legislative and regulatory changes that affect our business; the availability of funds and working capital; the actions and initiatives of current and potential competitors; investor sentiment; and our reputation. We do not undertake any responsibility to publicly release any revisions to these forward-looking statements to take into account events or circumstances that occur after the date of this report. Additionally, we do not undertake any responsibility to update you on the occurrence of any unanticipated events, which may cause actual results to differ from those expressed or implied by any forward-looking statements. The factors discussed herein are expressed from time to time in more detail in our filings with the Securities and Exchange Commission available at http://www.sec.gov .
FINANCIAL TABLES FOLLOW
NF ENERGY SAVING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS AND COMPREHENSIVE INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Currency expressed in United States Dollars ("$U.S."),
except for number of shares)
(Unaudited)
Three months ended June 30, Six months ended June 30,
2010 2009 2010 2009
REVENUES, NET
Products $ 3,650,612 $ 4,627,735 $ 6,164,844 $ 6,729,561
Services 3,192,200 590,969 3,518,451 908,975
Projects 375,157 -- 375,157 --
Total revenues, net 7,217,969 5,218,704 10,058,452 7,638,536
COST OF REVENUES:
Cost of products 2,316,196 3,250,140 4,264,543 4,816,014
Cost of services 2,572,151 443,785 2,784,836 618,281
Cost of projects 306,378 -- 306,378 --
Total cost of
revenues 5,194,725 3,693,925 7,355,757 5,434,295
GROSS PROFIT 2,023,244 1,524,779 2,702,695 2,204,241
OPERATING EXPENSES:
Sales and marketing 14,905 25,628 32,652 74,453
General and
administrative 198,770 194,053 353,510 339,246
Stock based
compensation -- 349,000 -- 349,000
Total operating
expenses 213,675 568,681 386,162 762,699
INCOME FROM
OPERATIONS 1,809,569 956,098 2,316,533 1,441,542
Other (expense)
income:
Interest income 351 1,148 594 9,005
Other income -- 5 -- 10,164
Subsidy income -- 33,610 -- 33,610
Interest expense (154,136) -- (234,780) --
Total other
(expense) income (153,785) 34,763 (234,186) 52,779
INCOME BEFORE
INCOME TAXES 1,655,784 990,861 2,082,347 1,494,321
Income tax expense (285,465) (181,912) (344,845) (243,460)
NET INCOME $ 1,370,319 $ 808,949 $ 1,737,502 $ 1,250,861
Other comprehensive
income:
- Foreign currency
translation gain 95,626 26,690 96,245 40,328
COMPREHENSIVE
INCOME $ 1,465,945 $ 835,639 $ 1,833,747 $ 1,291,189
Net income per
share:
- Basic $ 0.10 $ 0.06 $ 0.13 $ 0.09
- Diluted $ 0.10 $ 0.06 $ 0.13 $ 0.09
Weighted average
common stock
outstanding:
- Basic 13,315,486 13,291,387 13,315,486 13,291,387
- Diluted 13,373,820 13,291,387 13,373,820 13,291,387
NF ENERGY SAVING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2010 AND DECEMBER 31, 2009
(Currency expressed in United States Dollars ("$U.S."),
except for number of shares)
(Unaudited)
June 30, December 31,
2010 2009
(Unaudited) (Audited)
ASSETS
Current assets:
Cash and cash equivalents $ 508,959 $ 227,329
Accounts receivable, trade 9,392,115 12,510,875
Retention receivable 406,993 874,759
Inventories 1,968,930 638,775
Deferred tax assets 1,414 1,408
Prepayments and other receivables 2,062,607 603,456
Total current assets 14,341,018 14,856,602
Plant and equipment, net 2,048,661 2,169,740
Construction in progress 11,853,759 9,045,332
TOTAL ASSETS $ 28,243,438 $ 26,071,674
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 1,882,319 $ 2,055,839
Customer deposits 622,915 152,850
Income tax payable 246,914 201,480
Convertible promissory notes, net 369,299 --
Note payable 528,743 --
Current portion of obligation under
finance lease 466,188 437,917
Other payables and accrued liabilities 565,751 1,928,494
Total current liabilities 4,682,129 4,776,580
Long-term liabilities:
Obligation under finance lease 356,592 675,809
TOTAL LIABILITIES 5,038,721 5,452,389
Commitments and contingencies
Stockholders' equity:
Common stock, $0.001 par value;
50,000,000 shares authorized;
13,315,486 and 13,315,486 shares
issued and outstanding as of June 30,
2010 and December 31, 2009 13,315 13,315
Additional paid-in capital 8,720,917 7,969,232
Statutory reserve 1,449,345 1,449,345
Accumulated other comprehensive income 1,444,627 1,348,382
Retained earnings 11,576,513 9,839,011
Total stockholders' equity 23,204,717 20,619,285
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 28,243,438 $ 26,071,674
NF ENERGY SAVING CORPORATION
CONDENSED CONSOLIDATED CASH FLOW
AS OF SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Unaudited)
Six months ended June 30,
2010 2009
Cash flows from operating activities:
Net income $ 1,737,502 $ 1,250,861
Adjustments to reconcile net income to
net cash provided by operating
activities
Depreciation 145,395 148,963
Stock based compensation -- 349,000
Gain on disposal of plant and equipment (223) --
Interest expenses, non-cash 160,984 --
Change in operating assets and
liabilities:
Accounts receivable, trade 3,159,179 (540,094)
Retention receivable 469,637 --
Inventories (1,322,393) 681,231
Prepayments and other receivables (1,389,196) 7,781
Accounts payable, trade (181,458) 658,202
Customer deposits 467,627 7,295
Income tax payable 44,417 181,825
Other payables and accrued liabilities (1,368,916) (61,891)
Net cash provided by operating
activities 1,922,555 2,683,173
Cash flows from investing activities:
Purchase of plant and equipment (16,728) (179,070)
Payments to construction in progress (2,759,833) (2,595,776)
Proceeds from disposal of plant and
equipment 1,251 --
Net cash used in investing activities (2,775,310) (2,774,846)
Cash flows from financing activities:
Payments on finance lease (294,493) (709,373)
Proceeds from note payable 526,720 --
Proceeds from convertible promissory
notes 900,000 --
Net cash provided by (used in) financing
activities 1,132,227 (709,373)
Effect on exchange rate change on cash
and cash equivalents 2,158 22,345
NET CHANGE IN CASH AND CASH EQUIVALENTS 281,630 (778,701)
BEGINNING OF PERIOD 227,329 2,252,771
END OF PERIOD $ 508,959 $ 1,474,070
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for income taxes $ 49,871 $ 61,561
Cash paid for interest $ 261,945 $ --
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Equipment purchased under finance
leases $ -- $ 1,381,579
For more information, please contact:
Company Contact:
Ms. Lihua Wang, Director & CFO
Tel: +86-24-8563 1159
Email: [email protected]
NF Energy Saving Corp.
Web: http://www.nfenergy.com
Investor Relations Contact:
Mr. Mark Collinson, Partner
Tel: +1-310-954-1343
Email: [email protected]
CCG Investor Relations
Web: http://www.ccgirasia.com
SOURCE NF Energy Saving Corp.
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