-- Q3 FY 2010 revenue increased 112% to $21.2 million
-- Net income of $4.3 million, with EPS of $0.10 per share, which includes a $3.3 million government subsidy
-- Gross profit margin 41% for second consecutive quarter due to ongoing operating efficiencies
-- Company reaffirms full year 2010 guidance of $17 million to $18 million in net income
HOHHOT CITY, China, Oct. 18 /PRNewswire-Asia/ -- China Energy Corporation (OTC Bulletin Board: CHGY), ("China Energy" or the "Company"), a coal trader and a producer and processor of raw coal for domestic heating, electrical generation, and coking purposes for steel production and a supplier of heating and electric energy services, in Inner Mongolia, announced financial results for the third quarter of its fiscal year ending August 31, 2010.
Summary Financials
| Third Quarter Results (3 months ended August 31) | |||
| USD | FY 2010 | FY 2009 | Change |
| Sales | $21.2 million | $10.0 million | +112.0% |
| Gross Profit | $8.7 million | $2.2 million | +295% |
| Net Income | $4.3 million | $(0.5) million | -- |
| EPS (fully diluted) | $0.10 | $(0.01) | -- |
| Nine Month Results (9 months ended August 31) | |||
| USD | FY 2010 | FY 2009 | Change |
| Sales | $62.4 million | $19.4 million | +222% |
| Gross Profit | $24.1 million | $2.7 million | +793% |
| Net Income | $12.7 million | $(2.0) million | -- |
| EPS (fully diluted) | $0.28 | $(0.04) | -- |
Third Quarter Results
For the quarter ended August 31, 2010, the Company reported revenue of $21.2 million, a 112% increase over revenue of $10.0 million in the third quarter of fiscal year 2009. Quarterly sales from the Company's coal group increased 87% to $17.2 million, or 81% of total sales, compared to $9.2 million, or 93% of total sales in the prior-year quarter. As a component of this, 45% of total company sales came from coal production, and 36% came from coal trading during the quarter. China Energy produced approximately 215,000 metric tons of coal in the third quarter of 2010, compared to 136,000 metric tons in the same period of fiscal year 2009. The 58% year-over-year increase was due to the fact that the production at LaiYeGou coal mine was partially shut down for the installation of the long wall automatic mining equipment and normal production resumed in mid July 2009 with the completion of the installation and adjustment of the equipment. Volume of coal sold by our proprietary trading business was approximately 144,000 metric tons during the three months ended August 31, 2010, compared to 114,000 metric tons in the comparable three months in 2009. This increase was mainly attributable to the increased railway transportation quota granted for 2010.
Sales from Heat Power Group totaled $4.0 million in the third quarter of 2010, or 19% of total sales compared to $0.8 million, or 7% of total sales in the prior-year quarter. The Company received a one-time government subsidy amounting to $3.3 million in connection with providing heat at the reduced rate set by the government to ensure that the local residents in the XueJiaWan area can afford to make the payments.
"Due to our expanded production capacity and the efficiency of our long wall mining equipment, we expect revenue from coal production to remain robust, and expect incremental growth from our proprietary coal trading operation as we have been granted additional quota for space on trains from the local railway bureau," stated WenXiang Ding, chief executive officer and president. "Additionally, our momentum, financial strength, existing infrastructure, and proximity to additional coal resources in the region position the Company for expansion through potential acquisitions. We also expect the continued development of the XueJiaWan district to fuel growth in our Heat Power segment."
Cost of goods sold in the third quarter of fiscal year 2010 was approximately $12.5 million, compared to approximately $7.8 million in the third quarter of 2009. Gross profit was $8.7 million and the gross margin was 41% in the quarter, compared to $2.2 million in gross profit and a gross margin of 22% during the same period in fiscal year 2009. The year-over-year gross margin improvement was due to higher margins from its Coal Group and the $3.3 million government subsidy for the Heat Group.
Total operating expenses for the third quarter of fiscal year 2010 were approximately $2.3 million, or 11% of revenue, compared to $1.8 million or 18% of revenue in third quarter fiscal year 2009. Selling and marketing expenses in third-quarter fiscal year 2010 were $1.3 million compared to $0.8 million in the same period in fiscal year 2009 due to investments to expand its proprietary coal trading business. General and administration expenses totaled $1.0 million, flat versus last year, due to lower office expenses offset by higher salaries and benefits. Operating margins improved to 30% from 4% in the three months ended August 31, 2010.
Net income during the quarter totaled approximately $4.3 million, or $0.10 per share, compared to a loss of approximately $0.5 million, or $0.01 per share in the third quarter of fiscal year 2009. Third quarter 2010 net income included a one-time $3.3 million government subsidy, which did not occur in the third quarter of 2009. The weighted average common shares outstanding were 45.0 million in both periods.
Nine Month Results
For the nine months ended August 31, 2010, the Company reported revenue of $62.4 million, a 222% increase over revenue of $19.4 million in the same period of fiscal year 2009. Nine-month sales from the Company's Coal Group increased 311% to $51.0 million, or 82% of total sales, compared to $12.4 million, or 64% of total sales in the prior year. As a component of this, coal production and coal trading each accounted for 41% of total revenues in the first nine months of 2010. China Energy produced approximately 598,000 metric tons of coal during the nine months of fiscal 2010, compared to 158,000 metric tons in the same period of fiscal year 2009. The 278% year-over-year increase in production from the Company's Coal Group was primarily driven by the fact that production at the Company's LaiYeGou coal mine was partially shut down in 2009 due to the $10 million expansion and improvement program. Volume of coal sold by our proprietary trading business is approximately 497,000 metric tons during the nine months ended August 31, 2010, compared to 147,000 metric tons in the comparable nine months in 2009. The 238% year-over-year increase in proprietary coal trading volumes was mainly due to our railway transportation quota increasing from 500,000 tons in 2009 to 840,000 tons in 2010. Sales at the Heat Power Group totaled $11.4 million, or 18% of total sales compared to $7.0 million, or 36% of total sales in the same period of last year.
Cost of goods sold for the nine months ended August 31, 2010 was approximately $38.4 million, compared to approximately $16.7 million in the prior year. Gross profit was $24.0 million and the gross margin was 39% in the nine months of fiscal 2010, compared to $2.7 million in gross profit and a gross margin of 14% during the same period in fiscal year 2009.
Total operating expenses for the nine months of fiscal year 2010 were approximately $6.2 million, or 10% of revenue, compared to $3.3 million or 17% of revenue same period in fiscal year 2009.
Net income for the nine months of fiscal year 2010 totaled approximately $12.7 million, or $0.28 per share, compared to a loss of approximately $2.0 million, or $0.04 per share in the same period in fiscal year 2009. Net income margins were 20% for the nine months of fiscal year 2010. Per share amounts for third quarter 2010 and 2009 are based on 45 million shares outstanding.
Balance Sheet and Cash Flow
Cash and cash equivalents totaled $4.2 million on August 31, 2010 compared to $5.1 million on November 30, 2009. The Company had total assets of $124.2 million versus total liabilities of $86.6 million as of August 31, 2010. For the first nine months of fiscal year 2010, the Company generated $9.8 million in cash from operations versus $0.3 million in the same period of fiscal year 2009 due to higher income from operations and lower term deposit requirements.
Financial Guidance and Business Updates
The Company is reaffirming its previously reported fiscal year guidance, and anticipates reporting between $17 million and $18 million in net income for its fiscal year ending November 30, 2010. The midpoint of this range represents an increase of 243% from fiscal year 2009.
Management anticipates sales of its Coal Group, which includes coal mining and sales as well as coal trading, will represent approximately 80% to 90% of revenues during 2010. The Company expects to produce an aggregate of approximately 800,000 metric tons of coal for the fiscal year ending November 30, 2010. China Energy produced approximately 598,000 metric tons of coal in the first nine months of fiscal 2010 compared with 158,000 metric tons in the same period last year. The Coal Group's current annual railway transportation quota increased 68% from 2009 to 840,000 metric tons, 660,000 tons of which was acknowledged by local railway bureau in writing. Based on the Company's long track record of successfully filling the extra quota, China Energy will be able to grow its coal trading business through increased quotas granted by the local railway bureau in future.
Inner Mongolia became the largest coal producing region in China last year, producing approximately 637 million metric tons of coal. Currently PRC government policy encourages industry consolidation. According to Inner Mongolia Autonomous Region Bureau of Coal Industry, from 2000 to 2009, the number of coal mines fell from 2,009 to 501 as a result of consolidation and shut-downs. China Energy believes that this consolidation trend will lead to valuable, reasonably-priced acquisition opportunities for it in the marketplace.
The Company also expects higher levels of sales from the Heat Power group due to a 29% increase in coverage area of the Company's heating operations and an increase in the volume of electricity sold by its electric power operations. The Company's guidance does not include any contribution from future acquisitions by the Company. Management will continue to evaluate its business outlook as necessary and communicate any changes on a quarterly basis or when appropriate.
About China Energy Corporation
China Energy Corporation produces and processes raw coal for domestic heating, electrical generation and coking purposes for steel production primarily in the People's Republic of China, and acts as a brokerage in facilitating coal trade transactions. The Company produces coal through its subsidiary Inner Mongolia Tehong Coal Group Co, Ltd. ("Coal Group") and supplies heating and electricity requirements throughout the XueJiaWan district through its subsidiary Inner Mongolia Zhunger Heat Power Co., Ltd. ("Heat Power"). Through Heat Power, China Energy operates a thermoelectric plant and 32 heat transfer stations located in XueJiaWan, Ordos City in which the Company has a monopoly for heating supply granted to the Company by the local government. For additional information on China Energy Corporation see http://www.ceccec.com .
Cautionary Statement Regarding Forward-Looking Information
This press release may contain certain "forward-looking statements" relating to the business of China Energy Corporation, and its subsidiary companies. All statements, other than statements of historical fact included herein are "forward-looking statements" including statements regarding: the impact of the proceeds from the private placement on the Company's short term business and operations, the general ability of the Company to achieve its commercial objectives, including the ability of the Company to sustain growth; the business strategy, plans and objectives of the Company and its subsidiaries; and any other statements of non-historical information. These forward-looking statements are often identified by the use of forward-looking terminology such as "believes," "expects" or similar expressions, involve known and unknown risks and uncertainties. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those discussed in the Company's periodic reports that are filed with the Securities and Exchange Commission and available on its website (http://www.sec.gov)
For more information, please contact:
| Company: |
| Alex (Yuan) Gong, Chief Financial Officer |
| Tel: +86-10-5203-6900 |
| Email: alexgong08@gmail.com |
| Investor Relations: |
| HC International, Inc. |
| Ted Haberfield, Executive VP |
| Tel: +1-760-755-2716 |
| Email: thaberfield@hcinternational.net |
| CHINA ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS |
||||||||
| August31, | November30, | |||||||
| 2010 | 2009 | |||||||
| (Unaudited) | (Audited) | |||||||
| US$ | US$ | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 4,165,914 | $ | 5,073,645 | ||||
| Term deposit-restricted | 7,345,488 | - | ||||||
| Accounts receivable, net of allowance for doubtful accounts of $121,201 and $120,853, respectively | 8,404,009 | 4,600,667 | ||||||
| Other receivables | 2,841,906 | 4,447,272 | ||||||
| Advance to suppliers | 4,511,336 | 5,511,630 | ||||||
| Inventories | 4,836,078 | 5,574,465 | ||||||
| Total current assets | 32,104,731 | 25,207,679 | ||||||
| Fixed assets: | ||||||||
| Property, plant and equipment | 61,854,649 | 50,546,862 | ||||||
| Construction in progress | 6,069,246 | 4,236,281 | ||||||
| 67,923,895 | 54,783,143 | |||||||
| Less: accumulated depreciation and depletion | (10,180,956) | (7,456,849) | ||||||
| Fixed assets, net | 57,742,939 | 47,326,294 | ||||||
| Other assets: | ||||||||
| Investment property, net of accumulated depreciation of $200,738 and $166,172, respectively | 1,907,766 | 1,936,278 | ||||||
| Intangible assets, net of amortization of $1,008,986 and $787,417, respectively | 3,418,786 | 3,627,642 | ||||||
| Restricted cash | 535,501 | 149,898 | ||||||
| Other long term assets | 510,379 | 450,021 | ||||||
| Notes receivable | 27,968,634 | 7,913,100 | ||||||
| Total other assets | 34,341,066 | 14,076,939 | ||||||
| TOTAL ASSETS | $ | 124,188,736 | $ | 86,610,912 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Short term bank loans | $ | 29,969,590 | $ | 12,012,012 | ||||
| Accounts payable | 16,345,032 | 11,489,568 | ||||||
| Notes payable | 7,345,488 | - | ||||||
| Advance from customers | 7,415,849 | 12,125,187 | ||||||
| Accrued liabilities | 472,857 | 325,539 | ||||||
| Other payables | 738,915 | 387,729 | ||||||
| Shareholder loans | 8,749,104 | 9,972,279 | ||||||
| Current portion of deferred income | 881,957 | 822,930 | ||||||
| Total current liabilities | 71,918,792 | 47,135,244 | ||||||
| Deferred income, net of current portion | 6,114,243 | 6,224,033 | ||||||
| Total liabilities | 78,033,035 | 53,359,277 | ||||||
| Stockholders' equity: | ||||||||
| Common stock (authorized 200,000,000 shares of $0.001 par value; 45,000,000 shares issued and outstanding, respectively) |
45,000 | 45,000 | ||||||
| Additional paid-in capital | 9,036,039 | 8,970,805 | ||||||
| Retained earnings | 24,956,344 | 12,542,081 | ||||||
| Statutory reserves | 8,390,155 | 8,078,765 | ||||||
| Other comprehensive income | 3,728,163 | 3,614,984 | ||||||
| Total stockholders' equity | 46,155,701 | 33,251,635 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 124,188,736 | $ | 86,610,912 | ||||
| CHINA ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (UNAUDITED) |
||||||||||||||||
| Fortheninemonthsended August31, |
Forthethreemonthsended August31, |
|||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
| US$ | US$ | US$ | US$ | |||||||||||||
| Revenues | $ | 62,404,876 | $ | 19,425,386 | $ | 21,152,260 | $ | 9,962,620 | ||||||||
| Cost of revenues | (38,351,847) | (16,690,400) | (12,499,542) | (7,766,209) | ||||||||||||
| Gross profit | 24,053,029 | 2,734,986 | 8,652,718 | 2,196,411 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling and marketing | (3,490,979) | (1,076,552) | (1,268,698) | (838,399) | ||||||||||||
| General and administrative | (2,748,519) | (2,232,749) | (1,016,673) | (1,002,605) | ||||||||||||
| Total operating expenses | (6,239,498) | (3,309,301) | (2,285,371) | (1,841,004) | ||||||||||||
| Income (loss) from operations | 17,813,531 | (574,315) | 6,367,347 | 355,407 | ||||||||||||
| Investment income (loss) | - | 36,841 | - | (6) | ||||||||||||
| Non-operating income | 1,107,448 | 493,367 | 424,770 | 168,194 | ||||||||||||
| Finance expenses, net | (1,377,543) | (580,212) | (606,542) | (381,490) | ||||||||||||
| Non-operating expenses | (291,837) | (882,189) | (116,326) | (125,106) | ||||||||||||
| Income (loss) before income taxes | 17,251,599 | (1,506,508) | 6,069,249 | 16,999 | ||||||||||||
| (Provision for) income taxes | (4,525,946) | (448,778) | (1,770,354) | (473,368) | ||||||||||||
| Net income (loss) | $ | 12,725,653 | $ | (1,955,286) | $ | 4,298,895 | $ | (456,369) | ||||||||
| Other comprehensive income | ||||||||||||||||
| Foreign currency translation adjustment | 113,179 | 2,918,007 | 136,970 | 2,839,002 | ||||||||||||
| Total comprehensive income | $ | 12,838,832 | $ | 962,721 | $ | 4,435,865 | $ | 2,382,633 | ||||||||
| Net income (loss) per common share, basic and diluted | $ | 0.28 | $ | (0.04) | $ | 0.10 | $ | (0.01) | ||||||||
| Weighted average common shares outstanding, basic and diluted | 45,000,000 | 45,000,000 | 45,000,000 | 45,000,000 | ||||||||||||
| CHINA ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) |
||||||||
| Fortheninemonthsended August31, |
||||||||
| 2010 | 2009 | |||||||
| US$ | US$ | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | 12,725,653 | $ | (1,955,286) | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 3,019,559 | 2,168,615 | ||||||
| Stock based compensation | 65,234 | - | ||||||
| Loss on disposal of property, plant and equipment | - | 740,058 | ||||||
| Gain from short term investments | - | (36,841) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| (Increase) in term deposit-restricted | (7,345,488) | - | ||||||
| (Increase) in restricted cash | (385,603) | - | ||||||
| (Increase) in accounts receivable | (3,803,690) | (2,986,260) | ||||||
| Decrease in other receivables | 1,605,366 | 1,252,468 | ||||||
| (Increase) in advance to suppliers | (637,916) | (787,908) | ||||||
| Decrease (increase) in inventories | 738,387 | (4,388,091) | ||||||
| (Increase) in other long term assets | (25,000) | (29,283) | ||||||
| (Decrease) increase in deferred income | (50,763) | 306,525 | ||||||
| Increase in accounts payable | 660,882 | 2,090,381 | ||||||
| (Decrease) increase in advance from customers | (4,709,338) | 7,907,009 | ||||||
| Increase in notes payable | 7,345,488 | - | ||||||
| Increase (decrease) in accrued liabilities and other payables | 607,852 | (3,981,658) | ||||||
| Net cash provided by operating activities | 9,810,623 | 299,729 | ||||||
| Cash flows from investing activities: | ||||||||
| Purchase of property, plant and equipment | (5,041,280) | (5,314,241) | ||||||
| Proceeds received on sales of fixed assets | - | 75,485 | ||||||
| Increase in construction in progress | (2,186,114) | (1,247,575) | ||||||
| (Increase) in notes receivable | (20,617,494) | (5,215,264) | ||||||
| Payments received on notes receivable | 561,960 | 893,419 | ||||||
| Net cash (used in) investing activities | (27,282,928) | (10,808,176) | ||||||
| Cash flows from financing activities: | ||||||||
| Proceeds from short term bank loans | 29,929,138 | 16,403,767 | ||||||
| Principal payments made on short term bank loans | (12,030,340) | (2,929,244) | ||||||
| Advance from shareholders | - | 4,439,269 | ||||||
| Repayments of shareholder loans | (1,450,852) | (2,081,017) | ||||||
| Net cash provided by financing activities | 16,447,946 | 15,832,775 | ||||||
| Effect of exchange rate changes on cash | 116,628 | 2,581,150 | ||||||
| Net (decrease) increase in cash and cash equivalents | (907,731) | 7,905,478 | ||||||
| Cash and cash equivalents, beginning of period | 5,073,645 | 456,802 | ||||||
| Cash and cash equivalents, end of period | $ | 4,165,914 | $ | 8,362,280 | ||||
| Supplemental disclosure of cash flow information | ||||||||
| Cash paid for interest | $ | 1,070,341 | $ | 514,526 | ||||
| Cash paid for income taxes | $ | 349,114 | $ | 263,336 | ||||
