NEW YORK, Aug. 11 /PRNewswire-Asia/ -- - 2Q09 Revenue Increases
22.8% YoY to $20.7 Million - - 2Q09 Gross Margin Increases 417
Basis Points YoY to 49.6% - - 2Q09 Adjusted Net Income Increases
34.5% YoY to $5.2 Million - -2Q09 Adjusted Diluted EPS Increases
29.6% to $0.35 - 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, 2009. Second quarter 2009 Results Revenue in the
second quarter of 2009 increased 22.8% to $20.7 million from $16.9
million in the second quarter of 2008, driven by higher sales
across all revenue categories. Sales of natural gas grew 14.0% YoY
to $15.7 million, from $13.8 million in the second quarter of 2008.
Installation and services revenue grew 74.0% YoY to $3.4 million,
from $1.9 million a year ago; while gasoline revenue increased
42.2% to $1.6 million, from $1.1 million in the prior year's
period. In the second quarter of 2009, sales of natural gas,
installation and services, and gasoline contributed 75.8%, 16.3%,
and 7.9% of total revenue, respectively. Gross profit in the second
quarter of 2009 expanded 34.1% to $10.3 million, from $7.7 million
in the prior year's same period. Correspondingly, gross margin
expanded 417 basis points to 49.6% in the second quarter of 2009,
from 45.4% a year ago, as the Company continues to benefit from a
combination of higher sales of natural gas and lower costs of
natural gas supply. Operating income in the second quarter of 2009
increased by $1.7 million, or 33.8% YoY, to $6.8 million, from $5.1
million in the prior year's period. Meanwhile, operating expenses
in the second quarter of 2009 increased by approximately $0.9
million to $3.5 million, versus $2.6 million in the prior year's
period, mainly due to additional expenses related to the
acquisition of Lingbao Natural Gas, Co. in Oct. 2008 as well as the
addition of 6 new fueling stations added since the second quarter
of 2008. Consequently, second quarter 2009 operating margin
expanded 267 basis points to 32.6%, from 29.9% in second quarter of
2008. During the quarter, the Company recognized $1.3 million
non-cash expense from an estimated change in the fair value of
warrants, versus zero in the second quarter of 2008. Income tax
expense was $1.2 million for an effective tax rate of 23.5%, as
compared to an effective tax rate of 19.7% in the second quarter of
2008. As a result, net income in the second quarter of 2009
increased 10.0% to $3.9 million, or $0.26 per diluted share, from
$3.5 million, or $0.24 per diluted share, in the second quarter of
2008. Excluding the impact of the non-cash expenses (see "About
Non-GAAP Financial Measures" toward the end of this release),
adjusted net income grew 34.5% to $5.2 million, versus $3.9 million
in the second quarter of 2008. Adjusted earnings per diluted share
was $0.35, an increase of 29.6% from $0.27 per diluted share in the
second quarter of 2008. Mr. Qinan Ji, Chairman and CEO of China
Natural Gas, commented, "We are pleased to have extended our solid
track record of consistent growth and profitability. During this
quarter, we successfully fulfilled our commitment to list China
Natural Gas' stock on the NASDAQ Global Market, which was a
landmark event in our Company's history. We believe this
achievement highlights our dedication to not only raise our
visibility among the investment community but also increase the
liquidity and trading efficiencies of our common stock. I'd like to
thank our investors for their support and confidence in our team,
growth strategy and operating plans. We continue to leverage our
strong brand and considerable operational scale to expand our
geographical presence and steadily grow our CNG customer base. As
demonstrated by our strong performance in revenue growth, gross
margin expansion and solid cash flows, we remain confident in our
outlook for the remainder of 2009. Liquidity and Capital Resources
As of June 30, 2009, the Company had $9,701,176 of cash and cash
equivalents on hand compared to $29,180,315 of cash and cash
equivalents as of June 30, 2008. Net cash provided by operating
activities was $14.4 million for the six months ended June 30, 2009
compared to net cash provided by operations of $8.1 million for the
six months ended June 30, 2008. The Company paid $10.4 million to
the LNG processing plant as a prepayment on equipment as well as an
additional investment to construction in progress. Accounts
receivable was a modest $1.0 million, and Days Sales Outstanding
remained solidly below 10 days. Financial Outlook for 2009 The
Company reaffirms its projection for the full year 2009 of revenue
growing 15% to 20% to a range of $78 million to $83 million, from
$68 million in 2008. The Company also reaffirms its net income
guidance of a range of $17.5 million to $18.5 million, a 15% to 22%
growth from $15.2 million in 2008. Mr. Ji concluded, "We expect to
take advantage of the long-term opportunities driven by government
policies and regulations, as well as the growing need for natural
gas for industrial, commercial and residential uses in China. We
remain steadfast in our vision, and we believe that with our
successful listing on NASDAQ and our continued strong financial
performance in the second quarter of 2009, we have marched several
steps closer toward our goal of becoming the leader in China's fast
growing natural gas market. We continue to be delighted with our
growth opportunities, and we are excited about our ability to
deliver sustained, strong financial results and to ultimately
reward our supportive shareholders with greater share value."
Conference Call The management team will hold a conference call on
Tuesday, August 11th, 2009, at 8:00 am ET to discuss its second
quarter 2009 results. Listeners may access the call by dialing
1-800-289-0730 or 1-913-312-0710 for international callers. A
webcast will also be available via the Company's website at
http://www.naturalgaschina.com/ . A replay of the call will be
available through August 18, 2009. Listeners may access the replay
by dialing 1-888-203-1112 or 1-719-457-0820 for international
callers, access code: 7941819. About China Natural Gas, Inc. The
Company transports, distributes and sells natural gas to
commercial, industrial and residential customers through its
natural gas pipeline networks in China's Xi'an area, including
Lantian County and the districts of Lintong and Baqiao, in Shaanxi
Province. The Company owns approximately 120 km of high pressure
pipelines in Xi'an, Shaanxi Province and, as of March 31, 2009,
operates 23 CNG fuelling stations in Shaanxi Province and 12 CNG
fuelling stations in Henan Province. The Company's four primary
business lines include: (1) the distribution and sale of CNG
through Company-owned/leased CNG fuelling 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/leased CNG fuelling stations for hybrid (natural
gas/gasoline) powered vehicles; and (4) the conversion of
gasoline-fuelled 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 are 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 SIX MONTHS ENDED JUNE
30, 2009 AND 2008 Three months ended Six months ended JUNE 30 JUNE
30 2009 2008 2009 2008 GAAP Net Income $3,862,756 3,512,892
$8,064,379 6,321,463 Add: Amortization of discount on senior notes
46,484 312,810 217,196 459,473 Amortization of deferred offering
costs 13,857 66,322 52,435 122,592 Change in fair value of warrants
1,312,834 -- 1,115,783 -- 5,235,931 3,892,025 9,449,793 6,903,528
Non-GAAP Net Income (Excludes all non-cash items) Weighted average
shares outstanding Basic 14,600,154 14,600,154 14,600,154
14,600,154 Diluted 14,726,647 14,661,748 14,600,154 14,664,867 GAAP
Basic EPS 0.26 0.24 0.55 0.43 Add: Amortization of discount on
senior notes 0.0032 0.0214 0.0149 0.0315 Amortization of deferred
offering costs 0.0009 0.0045 0.0036 0.0084 Change in fair value of
warrants 0.0899 -- 0.0764 -- Non-GAAP Basic EPS 0.35 0.27 0.64 0.47
GAAP Diluted EPS 0.26 0.24 0.55 0.43 Add: Amortization of discount
on senior notes 0.0032 0.0213 0.0149 0.0313 Amortization of
deferred offering costs 0.0009 0.0045 0.0036 0.0084 Change in fair
value of warrants 0.0891 -- 0.0764 -- Non-GAAP Diluted EPS 0.35
0.27 0.64 0.47 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 third 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
STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME FOR THE THREE
AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008 (Unaudited) Three
months ended Six months ended June 30 June 30 2009 2008 2009 2008
Revenue Natural gas revenue $15,720,679 $13,794,866 $30,686,498
$25,140,185 Gasoline revenue 1,633,016 1,148,097 2,807,414
2,278,847 Installation and other 3,388,825 1,947,523 5,776,274
3,497,128 Total revenue 20,742,520 16,890,486 39,270,186 30,916,160
Cost of revenue Natural gas cost 7,490,518 7,214,469 14,237,447
13,396,743 Gasoline cost 1,529,752 1,054,978 2,659,809 2,123,015
Installation and other 1,444,060 955,276 2,461,088 1,642,163 Total
cost of revenue 10,464,330 9,224,723 19,358,344 17,161,921 Gross
profit 10,278,190 7,665,763 19,911,842 13,754,239 Operating
expenses Selling expenses 2,331,739 1,568,674 4,655,967 2,910,288
General and administrative expenses 1,182,399 1,040,000 2,864,320
1,979,325 Total operating expenses 3,514,138 2,608,674 7,520,287
4,889,613 Income from operations 6,764,052 5,057,089 12,391,555
8,864,626 Non-operating income (expense) Interest income 7,784
51,476 16,692 106,761 Interest expense (388,618) (676,569)
(970,110) (1,036,229) Other income (expense), net (20,926) (3,600)
(23,229) (10,726) Change in fair value of warrant (1,312,834) --
(1,115,783) -- Foreign currency exchange loss (19) (52,831)
(50,807) (52,831) Total non- operating expense (1,714,613)
(681,524) (2,143,237) (993,025) Income before income tax 5,049,439
4,375,565 10,248,318 7,871,601 Provision for income tax 1,186,683
862,673 2,183,939 1,550,138 Net income 3,862,756 3,512,892
8,064,379 6,321,463 Other comprehensive income Foreign currency
translation gain (loss) (2,997) 1,494,722 (155,112) 3,797,724
Comprehensive income $3,859,759 $5,007,614 $7,909,267 $10,119,187
Weighted average shares outstanding Basic 14,600,154 14,600,154
14,600,154 14,600,154 Diluted 14,726,647 14,661,748 14,600,154
14,664,867 Earnings per share Basic $0.26 $0.24 $0.55 $0.43 Diluted
$0.26 $0.24 $0.55 $0.43 CHINA NATURAL GAS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2009 AND DECEMBER 31,
2008 June 30, December, 31 2009 2008 (Unaudited) ASSETS CURRENT
ASSETS: Cash & cash equivalents $9,701,176 $5,854,383 Accounts
receivable 979,179 906,042 Other receivable - employee advances
152,813 332,263 Inventories 1,196,791 519,739 Advances to suppliers
1,105,243 837,592 Prepaid expense and other current assets 558,868
838,294 Loan receivable 293,000 293,400 Total current assets
13,987,070 9,581,713 PROPERTY AND EQUIPMENT, NET 73,104,770
76,028,272 CONSTRUCTION IN PROGRESS 33,644,992 22,061,414 DEFERRED
FINANCING COSTS 1,541,914 1,746,830 OTHER ASSETS 9,021,067
8,844,062 TOTAL ASSETS $131,299,813 $118,262,291 LIABILITIES AND
STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and
accrued liabilities $1,621,773 $800,013 Other payables 197,161
124,151 Unearned revenue 1,969,317 944,402 Accrued interest
1,237,778 861,114 Taxes payable 2,166,889 1,862,585 Total current
liabilities 7,192,918 4,592,265 LONG TERM LIABILITIES: Notes
payable, net of discount $14,167,334 and $15,478,395 as of June 30,
2009 and December 31, 2008, respectively 25,832,666 24,521,605
Redeemable liabilities - warrants 17,500,000 17,500,000 Derivative
liabilities - warrants 2,130,091 -- Total long term liabilities
45,462,757 42,021,605 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS'
EQUITY: Preferred stock, $0.0001 per share; 5,000,000 shares
authorized; none issued -- -- Common stock, $0.0001 per share;
45,000,000 shares authorized, 14,600,152 shares issued and
outstanding at June 30, 2009 and December 31, 2008 1,460 1,460
Additional paid-in capital 25,357,254 32,115,043 Cumulative
translation adjustment 8,505,948 8,661,060 Statutory reserves
4,880,681 3,730,083 Retained earnings 39,898,795 27,140,775 Total
stockholders' equity 78,644,138 71,648,421 TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $131,299,813 $118,262,291 CHINA NATURAL GAS,
INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
SIX MONTHS ENDED JUNE 30, 2009 AND 2008 (Unaudited) Six Months
Ended June 30, 2009 2008 CASH FLOWS FROM OPERATING ACTIVITIES: Net
income $8,064,379 $6,321,463 Adjustments to reconcile net income to
net cash provided by operating activities: Depreciation and
amortization 2,782,209 1,358,378 Loss on disposal of building
improvements and equipment 21,370 12,134 Amortization of discount
on senior notes 217,196 459,473 Amortization of financing costs
52,435 122,592 Stock based compensation 100,758 38,896 Change in
fair value of warrants 1,115,783 -- Change in assets and
liabilities: Accounts receivable (74,409) (513,994) Other
receivable - employee advances 109,963 101,267 Inventories
(487,908) (269,136) Advances to suppliers (268,922) (279,741)
Prepaid expense and other current assets 157,372 (637,244) Accounts
payable and accrued liabilities 822,997 (11,440) Other payables
73,210 8,525 Unearned revenue 1,026,693 530,551 Accrued interest
376,664 454,164 Taxes payable 306,975 430,244 Net cash provided by
operating activities 14,396,765 8,126,132 CASH FLOWS FROM INVESTING
ACTIVITIES: Purchase of property and equipment (21,033)
(12,471,764) Proceeds from sales of property and equipment 41,305
-- Proceeds from short term investments -- 246,802 Additions to
construction in progress (10,372,858) (11,736,887) Change in
prepayment on long term assets (110,836) (3,559,485) Return of
acquisition deposit 449,910 -- Payment for intangible assets
(66,971) -- Payment for land use rights (463,870) (36,341) Increase
in stockholder receivable -- (2,836,800) Net cash used in investing
activities (10,544,353) (30,394,475) CASH FLOWS FROM FINANCING
ACTIVITIES: Proceeds from senior notes -- 40,000,000 Payment for
offering costs -- (2,122,509) Net cash provided by financing
activities -- 37,877,491 Effect of exchange rate changes on cash
and cash equivalents (5,619) 279,438 NET INCREASE IN CASH &
CASH EQUIVALENTS 3,846,793 15,888,586 CASH & CASH EQUIVALENTS,
BEGINNING OF PERIOD 5,854,383 13,291,729 CASH & CASH
EQUIVALENTS, END OF PERIOD $9,701,176 $29,180,315 SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION: Interest paid, net of
capitalized interest $237,641 $ -- Income taxes paid $1,934,887
$1,203,048 DATASOURCE: China Natural Gas, Inc. CONTACT: Jacky Shi,
IR Director of China Natural Gas Inc., +86-29-8832-3325 x922,
Mobile +86-139-9287-9998, ; or Michael Tieu of ICR, Inc.,
+86-10-6599-7960, Web Site: http://www.naturalgaschina.com/
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