China Dredging Group Co., Ltd. Reports Unaudited Third Quarter 2011 Results

FUZHOU, China, February 13, 2012 /PRNewswire-Asia/ -- China Dredging Group Co., Ltd. (together with its consolidated subsidiaries and variable interest entities, "China Dredging," the "Company," "we," "us" and "our"), one of the leading independent (not state-owned) providers of dredging services in the PRC, today announced its financial results for the third quarter of 2011.

Nine-Months Ended September 30, 2011 Highlights

• Revenues of $164.2 million, a 79.6% year-over-year increase
• Gross profit of $93.2 million, a 81.4% year-over-year increase
• Net income of $73.5 million, a 114.0% year-over-year increase
• Operating cash flow of $60.6 million, a 49.2% year-over-year increase
• Cash of $103.5 million and working capital of $115.9 million as of September 30, 2011
• Backlog balance of $84.0 million at September 30, 2011, a 34.8% increase from December 31, 2010

Three-Months Ended September 30, 2011 Highlights

• Revenues of $56.8 million, a 25.1% year-over-year increase
• Gross profit of $31.8 million, a 23.4% year-over-year increase
• Net income of $23.6 million, a 36.3% year-over-year increase

"I am very pleased that we were able to deliver strong quarterly results in the third quarter of 2011 and for the nine-months ending September 30, 2011," said Mr. Xinrong Zhuo, chairman and chief executive officer of China Dredging. "We believe this significant growth reflects our strong strategic relationship with our main contractors as well as the addition of new dredgers to our fleet."

Recent Developments

In July 2011, we entered into agreements to lease one non-self-propelling cutter suction dredger with dredging capacity of 3000 cubic meters per hour ("m³/h") and one trailer suction hopper dredger with dredging capacity of 7000 m³/h. In September 2011, we entered into an agreement to lease one non-self-propelling cutter suction dredger with dredging capacity of 2500 m³/h. As a result, we currently have 13 dredgers in our fleet, including 8 non-self-propelling cutter suction dredgers, 3 trailer suction hopper dredgers and 2 grab dredgers.

2011 Third Quarter Operating Results

Contract revenue increased by $11.4 million, or 25.1% (18.1% without foreign exchange effect), to $56.8 million for the three months ended September 30, 2011, compared to $45.4 million for the same period of 2010. Contract revenue increased by $72.8 million, or 79.6% (71.3% without foreign exchange effect), to $164.2 million for the nine months ended September 30, 2011, compared to $91.4 million for the same period of 2010. The increased contract revenue primarily resulted from the increase of our dredging volume and unit construction price, which is a price negotiated with the contractor for each specific project. With a net increase of four dredgers joining our fleet in 2011, we were able to deliver larger business volume and execute more projects requiring a variety of dredging methods. We completed 31.6 million and 91.9 million cubic meters of dredging volume for the three and nine months ended September 30, 2011, respectively, as compared to 26.7 million and 55.5 million cubic meters for the three and nine months ended September 30, 2010, representing increases of 18.3% and 65.8%, respectively, in dredging volume. In addition, the unit construction price per cubic meter increased by $0.10, or 5.9% (-0.2% without foreign exchange effect), to $1.80 for the three months ended September 30, 2011 from $1.70 for the same period of 2010, and increased by $0.14, or 8.5% (3.3% without foreign exchange effect), to $1.79 for the nine months ended September 30, 2011 from $1.65 for the same period of 2010. The increase was primarily due to an increase of demand for our dredging services and general market conditions.

Gross profit increased by $6.0 million, or 23.4% (16.1% without foreign exchange effect), to $31.8 million for the three months ended September 30, 2011, compared to $25.8 million for the same period of 2010. Gross profit increased by $41.8 million, or 81.4% (72.8% without foreign exchange effect), to $93.2 million for the nine months ended September 30, 2011, compared to $51.4 million for the same period of 2010. The increased gross profit primarily reflected our increased revenue. Our cost of contract revenue for three months ended September 30, 2011 increased by $5.3 million, or 27.3% (20.8% without foreign exchange effect), to $25.0 million, from $19.6 million for the same period of 2010. Our cost of contract revenue for nine months ended September 30, 2011 increased by $30.9 million, or 77.4% (69.4% without foreign exchange effect), to $70.9 million, from $40.0 million for the same period of 2010. As a percentage of revenue, our cost of contract revenue increased slightly from 43.2% for the three months ended September 30, 2010 to 43.9% for the same period of 2011, and it decreased slightly from 43.8% for the nine months ended September 30, 2010 to 43.2% the same period of 2011. Our gross profit margin decreased from 56.8% for the three months ended September 30, 2010 to 56.1% for the same period in 2010, and increased from 56.2% in nine months ended September 30, 2010 to 56.8% for the same period of 2011.

General and administrative expenses decreased by $0.2 million, or 9.4%, from $2.3 million, or 5.1% of revenues, for the three months ended September 30, 2010 to $2.1 million, or 3.7% of revenues, for the same period of 2011. General and administrative expenses increased by $1.6 million, or 33.4%, from $4.7 million, or 5.1% of revenues, for the nine months ended September 30, 2010 to $6.3 million, or 3.8% of revenues, for the same period of 2011. The increase in general and administrative expenses was primarily attributable to an increase in revenue.

During the three and nine months ended September 30, 2011, we had $1.2 million and $8.2 million, respectively, in net gains from the reductions of estimated obligations to investors that had been incurred as a result of our fourth quarter 2010 private placement. These gains have no income tax effect. We had no such gains or losses during the three and nine months ended September 30, 2010.

Income tax expense increased by $1.5 million, or 24.6%, to $7.5 million for the three months ended September 30, 2011, compared to $6.0 million for the same period of 2010. Income tax expense increased by $10.1 million, or 86.0%, to $21.9 million for the nine months ended September 30, 2011, compared to $11.8 million for the same period of 2010. The increased income tax expense primarily reflects our increased revenues and gross profit.

As a result of the foregoing, our net income increased by $6.3 million, or 36.3% (29.0% without foreign exchange effect), to $23.6 million for the three months ended September 30, 2011, compared to $17.3 million for the same period of 2010. Our net income increased by $39.2 million, or 114% (103.8% without foreign exchange effect), to $73.5 million for the nine months ended September 30, 2011, compared to $34.4 million for the same period of 2010.

As of September 30, 2011, we had cash of $103.5 million, total current assets $132.0 million, total assets of $256.0 million, total current liabilities of $16.1 million, non-current liabilities of $7.5 million, and a balance to Class A Preferred Shares of $50.0 million. We had operating cash flow for the nine months ended September 30, 2011 of $60.6 million.

Backlog

The following table summarizes changes in our backlog on contracts during the nine months ended September 30, 2011.

The new contracts entered into during the nine months ended September 30, 2011 included three one-year contracts for which work has commenced with an aggregate contract value of $61.0 million, which replaced preliminary agreements and notices of bid awards we regarded as part of our pipeline but not our backlog as of December 31, 2010.

About China Dredging

China Dredging is one of the leading independent (not state-owned) providers of specialized dredging services to the Chinese marine infrastructure market. With a modern fleet of thirteen dredging vessels, China Dredging has broad capabilities with which it is able to address diverse types of dredging projects. Its services, which require significant engineering and project management expertise, include on-site investigation and measurement, cost estimation, sediment and obstruction removal and transport and disposal of dredged material in an environmentally responsible manner. China Dredging conducts dredging operations through Fujian Xing Gang Port Service Co., Ltd., in which it holds a 50% equity interest, with the remaining 50% interest controlled by China Dredging pursuant to variable interest entity agreements.

Cautionary Note Regarding Forward-Looking Statements

This press release contains "forward-looking" statements regarding China Dredging's operating results and business prospects that involve substantial risks and uncertainties. You can identify some of these forward-looking statements by words or phrases such as "anticipate," "believe," "continue," "could," "estimate," "expect," "future," "intend," "likely to," "may," "plan," "project," "potential," "predict," "should," "scheduled to," "target," "will," "would," or similar words, as well as statements in the future tense, in connection with any discussion of future operating or financial performance. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of China Dredging, or industry results, to differ materially from those expressed or implied by such forward-looking statements. Important assumptions and other important factors that could cause actual results to differ materially from those forward-looking statements include, but are not limited to: continued public spending on PRC marine infrastructure; our ability to manage costs under our fixed-price contracts; our ability to maintain our concentrated customer base; the variable billing and payment cycles associated with our milestone contracts; our ability to maintain adequate working capital; our ability to expand our dredging fleet; unexpected adjustments or cancellations to our backlog; our ability to meet schedule requirements in our contracts; the significant competition in the markets in which we operate; our ability to attract and retain qualified personnel, including executive officers; extensive regulations of our business in the PRC; and political and economic policies of the Chinese government. Additional information and discussion of these risks, uncertainties, and other factors can be found in China Dredging's Annual Report on Form 20-F for the year ended December 31, 2010 and other securities filings by China Dredging with the U.S. Securities and Exchange Commission.

The forward-looking statements contained in this press release are made only as of the date hereof and China Dredging does not have or undertake any obligation to update or revise any forward-looking statements whether as a result of new information, subsequent events or otherwise.