China Clean Energy Inc.
cContact:
China Clean Energy Inc. William Chen, CFO
Email: william.chen@chinacleanenergyinc.com
Website: http://www.chinacleanenergyinc.com
CCG Investor Relations Inc.
David Rudnick, Account Manager
Telephone: +1(646) 626-4172
Email: david.rudnick@ccgir.com
FOR IMMEDIATE RELEASE
China Clean Energy Announces Third Quarter 2011 Financial Results Fuqing City, China - November 15, 2011 - China Clean Energy Inc. (OTC QB: CCGY) ("China Clean Energy", the "Company"), a producer of biodiesel fuel and environmentally-friendly specialty-chemical products made from renewable resources, today reported its financial results for the quarter ended September 30, 2011. Third Quarter 2011 Highlights
• Revenue totaled $17.1 million, up 7.3% from the third
quarter in 2010
• Gross profit totaled $2.9 million, down 20.6% from the
third quarter in 2010
• Gross margins were 17.2%, down from 23.2% in the same
period in 2010
• Operating income was $2.3 million, down 28.3% from the
third quarter in 2010
• Operating margins were 13.6%, down from 20.3% in the same
period in 2010.
• Net income was $1.6 million, or $0.05 per fully-diluted
share, compared to $2.3 million, or $0.06 per fully diluted
share for the third quarter of 2010
• Cash and cash equivalents were $23.6 million at the end of
September 30, 2011, up from $13.7 million at year end.
• Revenue totaled $55.4 million, up 35.6% from the same
period in 2010
• Gross profit totaled $11.4 million, up 43.3% from the same
period in 2010
• Gross margin was 20.5%, compared to 19.4% in the same
period in 2010
• Operating income was $9.3 million, up 45.7% from the same
period in 2010
• Net income was $8.2 million, or $0.26 per fully-diluted
share, compared to $4.1 million, or $0.13 per fully-diluted
share in the first nine months 2010
"We are pleased to announce the acquisition of Handan Guanxin
Technology Ltd., a feedstock supply company located in Hebei
Province, the People's Republic of China. In making this
acquisition of an upstream feedstock supplier, we now have
the ability to secure our raw materials supply, control costs
and expand our gross margins, all of which should lead to an
increase in bottom-line profitability," said Mr. Tai-ming Ou,
China Clean Energy's Chairman and CEO.
Mr. Ou continued, "This acquisition is a core component of
our strategic growth plan and gives us the ability to control
our raw materials sourcing which is very timely as it
addresses the general contraction in gross margins that
hindered our operating results during this past quarter.
While our blended raw material
costs rose 27% in the quarter as compared to the year-ago
quarter, we were only able to increase our average selling
prices by 17% due to competitive pressures in the market
place."
"Our year-to-date financial results for the nine months
reflects an expansion in sales to both existing and new
customers that reflects the continued strong demand for our
products. Our new raw materials sourcing solidifies business
model and affords us the capability to better meet current
customer demand as well as embark upon additional growth
objectives," concluded CEO Ou.
China Clean Energy's net revenue in the third quarter was
$17.1 million, up 7.3% from the third quarter of
2010. The increase in the quarter's revenue was driven by the
Company's specialty chemicals segment, which produced both
higher sales volume and average selling prices. The Company
has shifted its focus to
the specialty chemicals business due to the strong demand and
higher gross margin in this segment. For the
third quarter of 2011, approximately 94% of China Clean
Energy's total sales were attributable to its specialty
chemicals segment while 6% came from its biodiesel segment.
In the comparable year-ago period, 86% of the Company's sale
were attributable to its specialty chemicals segment while
14% derived from its biodiesel segment. For the third quarter
of 2011, domestic and international sales were $14.6 million
and $2.5 million, respectively, maintaining approximately the
same proportion as in the third quarter of 2010.
During the third quarter of 2011, the Company had sales
volume of 8,815 tons from specialty chemicals and
1,170 tons from biodiesel, compared to sales volume of 8,935
tons from specialty chemicals and 3,213 tons from biodiesel
during the same period in 2010. During the third quarter of
2011, the average selling price
was approximately $1,773 per ton for specialty chemicals and
approximately $897 per ton for biodiesel, compared to the
third quarter of 2010, in which the average selling price was
approximately $1,535 per ton
for specialty chemicals and approximately $682 per ton for
biodiesel. The increase in average selling price for
specialty chemicals was driven by increased demand and better
product mix. The increase in average selling price for
biodiesel was driven by an increase in the petroleum diesel
wholesale price.
Gross profit in the third quarter of 2011 was $2.9 million,
down 20.6% from the third quarter of 2010. The decrease in
gross profit was mostly due to the increase in feedstock
cost, which increased at a faster rate than average selling
prices, and was also attributable to generally lower sales
volume. For the third quarter of 2011, feedstock used for
production of biodiesel and specialty chemicals averaged
approximately $905 per ton and $1,447 per ton, respectively,
compared to approximately $590 per ton and $1,153 for the
same period in 2010, respectively. This increase in the cost
of specialty chemicals and biodiesel feedstock was primarily
due to the impact of domestic inflation.
Gross margin was 17.2% in the third quarter 2011, compared to
23.2% in the same period in 2010. This decrease in gross
margin was primarily due to both higher feedstock costs and
lower sales volume. The gross profit margin for specialty
chemicals was 18% in the third quarter as compared to 25% in
the comparable period a year ago. Gross margins for biodiesel
decreased to a negative 1% for the third quarter of 2011,
compared to 13% for the same period in 2010. This decrease in
gross margin for the biodiesel segment was primarily due to
the stagnant domestic wholesale diesel pricing and lower
sales volume.
General and administrative expenses in the third quarter of
2011 was $0.5 million representing a 53.7% increase from the
third quarter of 2010. This increase was primarily
attributable to additional expenses related to professional
services and non-cash charges for employee stock-based
compensation.
Net income for the third quarter of 2011 was $1.6 million, or
$0.05 per fully-diluted share, compared to
$1.8 million, or $0.06 per fully-diluted share, in the third
quarter of 2010. The decrease in net income for
the third quarter of 2011 as compared to the year-ago quarter
was mainly due to the decrease in sales volume and gross
margin of both the specialty chemicals and biodiesel
segments. Net income for the third quarter includes $90,565
non-cash income due to the change in fair value measurement
of the warrants issued in connection with the Company's 2008
private placement.
Adjusted net income, excluding a $90,565 non-cash income gain
due to change in the fair value of warrants and $177,138 of
stock-based compensation expenses, totaled $1.6 million or
$0.05 per fully-diluted share, compared to $2.2 million in
the third quarter of 2010, or $0.07 per fully-diluted share.
For a complete reconciliation of adjusted financial
information to nearest GAAP equivalent, please see the table
elsewhere in this press release.
Revenue for the first nine months of 2011 was $55.4 million,
up 35.6% from revenue of $40.8 million for the first nine
months of 2010. Gross profit was $11.4 million, up 43.3% from
gross profit of $7.9 million for the nine months of 2010.
Gross margin was 20.5%, compared to 19.4% for the first nine
months of 2010. Net income was $8.2 million, or $0.26 per
fully-diluted share, compared to $4.1 million, or $0.13 per
fully-diluted share in the nine months of 2010. After
adjusting for the changes in fair value of warrant
liabilities and stock-based compensation, non-GAAP net income
for the first nine months of 2011 was $6.9 million, or $0.22
per fully-diluted share, compared to $4.7 million in the
corresponding period of 2010, or
$0.15 per fully-diluted share.
As of September 30, 2011, China Clean Energy had $23.6 million in cash and cash equivalents, an increase from $13.7 million from the year end of 2010. The Company had approximately $19.9 million in working capital, and $7.0 million in total debt, which it intends to repay through cash generated from its business operations. Stockholders' equity as of September 30, 2011 stood at $49.3 million, or approximately $1.56 per share.
Recent Developments
China Clean Energy has acquired Handan Guanxin Technology
Ltd. ("Handan Guanxin"), a feedstock supplier company located
in Hebei Province, the People Republic of China. Handan
Guanxin will become the Company's vertically integrated
internal source of raw materials that it utilizes to produce
its specialty chemicals and biodiesel products.
The Company acquired Handan Guanxin in order to mitigate its
feedstock supply risk and to better control both the costs
and the quality of its feedstock. The consideration for the
transaction was a payment of approximately $13.1 million (RMB
83 million) that was funded entirely from the Company's
current cash holdings. The effective date of the acquisition
is November 15, 2011, and the acquisition is expected to
close as subject to customary closing conditions.
It is expected that Handan Guanxin will be able to produce
7,500 tons of the feedstock and some additional by-products
in its first year of operation, fulfilling approximately 30%
of the Company's feedstock needs. China Clean Energy
estimates that it can increase this level up to 15,000 tons
of feedstock supply after approximately 12 months. The
Company believes that the feedstock supply will be of better
quality than what is currently being used and that it can
reduce feedstock costs by an estimated 500 - 800 RMB per ton
at the first year's supply output of 7,500 tons of feedstock
production.
"The acquisition of Handan Guanxin Technology Ltd. will
ensure the optimal operating performance of our new year-old
facility as well as enable us to engage in additional
capacity expansion activities in the future." stated Mr.
Tai-ming Ou, China Clean Energy's Chairman and CEO.
"Our specialty chemicals business, in particular, continues
to see continued strong demand. This acquisition is a key
component to our strategy growth plan since it is our raw
materials sourcing that sets us apart from other participants
in the space who use such depleting commodities such as oil,
natural gas or coal. We believe that securing our raw
materials supply both reinforces our mission and enhances our
growth trajectory. We reiterate our top-line revenue guidance
of $75 million for the full year 2011." concluded CEO Mr. Ou.
China Clean Energy will hold its third quarter 2011
conference call at 10:00 a.m. Eastern Time on Tuesday,
November 15, 2011 to discuss its financial results. To
participate in the live conference call, please dial the
following number five to ten minutes prior to the scheduled
conference call time: +1 (866) 759-2078. International
callers should dial +1 (706) 643-0585. When prompted by the
operator, mention conference pass code 23274436. If you are
unable to participate in the call at this time, a replay will
be available for 14 days starting on Tuesday, November 15,
2011, at 1:00 p.m. Eastern Time. To access the replay, please
dial
+1 (855) 859-2056, international callers dial +1 (404)
537-3406, and enter the pass code 23274436.
China Clean Energy, through its wholly-owned subsidiaries, Fujian Zhongde Technology Co., Ltd. and Fujian Zhongde Energy Co., Ltd, is engaged in the development, manufacturing, and distribution of biodiesel and specialty chemical products made from renewable resources. For additional information please visit: http://www.chinacleanenergyinc.com
Safe Harbor Statement
This announcement contains forward-looking statements. All statements other than statements of historical fact in this announcement are forward-looking statements, including but not limited to, the effectiveness, profitability, and the marketability of the Company's products; the future trading of the common stock of the Company; the ability of the Company to capitalize on its expanded production capacity; the period of time for which its current liquidity will enable the Company to fund its operations; the Company's ability to protect its proprietary information; general economic and business conditions; the volatility of the Company's operating results and financial condition resulting from changes in raw material prices, international oil prices and price controls imposed by the Chinese government; the Company's ability to attract or retain qualified senior management personnel and research and development staff; and other risks detailed in the Company's filings with the Securities and Exchange Commission. These forward-looking statements involve known and unknown risks and uncertainties and are based on current expectations, assumptions, estimates and projections about the Company and the industry. The Company undertakes no obligation to update forward-looking statements to reflect subsequent occurring events or circumstances, or to changes in its expectations, except as may be required by law. Although the Company believes that the expectations expressed in these forward looking statements are reasonable, it cannot assure you that the Company's expectations will turn out to be correct, and investors are cautioned that actual results may differ materially from the anticipated results.
--FINANCIAL TABLES FOLLOW-CHINA CLEAN ENERGY INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)
Three months ended September 30
Nine months ended September 30,
2011 2010 2011 2010
REVENUES $ 17,137,183 $ 15,966,951 $ 55,368,905 $ 40,845,079
Less: cost of goods sold 14,193,951 12,258,337 43,995,154 32,910,770
GROSS PROFIT 2,943,232 3,708,614 11,373,751 7,934,309
OPERATING EXPENSES
Selling and marketing 70,411 97,696 399,308 269,177
General and administrative 511,604 332,887 1,571,680 1,207,336
Research and development 37,432 35,365 112,693 79,743
Total operating expenses 619,447 465,948 2,083,681 1,556,256
INCOME FROM OPERATIONS 2,323,785 3,242,666 9,290,070 6,378,053
OTHER INCOME (EXPENSE)
Interest income, net (139,999) (103,386) (366,419) (271,384) Impairment loss on assets held for sale - (257,391) - (257,391) Other expense (74,163) (46,852) (72,107) (32,211) Change in fair value of warrant liabilities 90,565 (252,231) 1,752,034 (246,478) Total other income (expenses) (123,597) (659,860) 1,313,508 (807,464)
-
INCOME BEFORE PROVISION FOR INCOME TAXES 2,200,188 2,582,806 10,603,578 5,570,589
PROVISION FOR INCOME TAXES 637,954 738,299 2,451,176 1,426,320
NET INCOME 1,562,234 1,844,507 8,152,402 4,144,269
OTHER COMPREHENSIVE INCOME
Foreign currency translation adjustment 366,634 495,457 1,312,810 523,874
COMPREHENSIVE INCOME $ 1,928,868 $ 2,339,964 $ 9,465,212 $ 4,668,143
BASIC AND DILUTED EARNINGS PER SHARE
Weighted average number of shares 31,512,269 31,512,269 31,512,269 31,512,269
Earnings per share $ 0.05 $ 0.06 $ 0.26 $ 0.13
CHINA CLEAN ENERGY INC. AND SUBSIDIARIES RECONCILIATION OF
ADJUSTED NET INCOME TO NET INCOME
The management of China Clean Energy uses non-GAAP adjusted
net earnings to measure the performance of the Company's
business internally by excluding non-recurring items as well
as non-cash charges related to the warrants issued in
connection with the Company's 2008 Private Placement
offering. The Company's management believes that these
non-GAAP adjusted financial measures allow the management to
focus on managing business operating performance because
these measures reflect the essential operating activities of
China Clean Energy and provide a consistent method of
comparison to historical periods. The Company believes that
providing the non-GAAP measures - which management uses
internally - to its investors is useful to investors for a
number of reasons. The non-GAAP measures provide a consistent
basis for investors to understand the Company's financial
performance in comparison to historical periods without
variation of non-recurring items and non-operating related
charges. In addition, it allows investors to better evaluate
the Company's performance using the same methodology and
information as those used by the management. Non-GAAP
measures are subject to inherent limitations because they do
not include all of the expenses included under GAAP and
because they involve the exercise of judgment of which
charges are excluded from the non-GAAP financial measure.
However, the management of China Clean Energy compensates for
these limitations by providing the relevant disclosure of the
items excluded.
The following table provides the non-GAAP financial measure
and a reconciliation of the non-GAAP
measure to the GAAP net income.
Three months ended September 30, Nine months ended September 30,
2011 2010 2011 2010
Net Income (Loss)Add back (Deduct):
Change in fair value of warrant
Stock-based compensation
Adjusted Net Income$ 1,562,234 $
$ (90,565) $
$ 177,138 $
$ 1,648,807 $
1,844,507
252,231
106,315
2,203,053
$ 8,152,402 $
$ (1,752,034) $
$ 547,279 $
$ 6,947,647 $
4,144,269
246,478
318,945
4,709,692
Diluted EPS $ Add back (Deduct):Change in fair value of warrant $ Stock-based compensation $ Adjusted EPS $
0.05 $
0.00 $
0.00 $
0.05 $
0.06 $
0.01 $
0.00 $
0.07 $
0.26 $
(0.06) $
0.02 $
0.22 $
0.13
0.01
0.01
0.15
CHINA CLEAN ENERGY INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
ASSETS
September 30, December 31,
2011 2010
CURRENT ASSETS
Cash and cash equivalents | $ 23,609,392 | $ 13,648,437 |
Restricted cash | - | 443,647 |
Accounts receivable, net of allowance for doubtful accounts of $0 and $29,665 | 3,015,118 | 4,080,424 |
Other current assets | 2,374 | 9,332 |
Tax Receivable | - | 63,865 |
Inventories | 2,260,497 | 2,126,375 |
Advances for inventory purchases | 1,504,072 | 1,031,401 |
Machinery and equipment held for sale | - | 108,458 |
Total current assets | 30,391,453 | 21,511,939 |
Plant and Equipment, net | 24,962,437 | 25,656,929 |
Intangible assets, net | 4,811,188 | 4,812,693 |
Deferred tax assets | 107,484 | 104,246 |
TOTAL ASSETS | $ 60,272,562 | $ 52,085,807 |
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable | $ 2,307,315 | $ 1,400,188 |
Accrued liabilities | 161,086 | 227,991 |
Customer deposits | 273,951 | 650,017 |
Taxes payable | 771,080 | 1,526,033 |
Banker acceptances | - | 1,494,878 |
Bank loan payable - current portion | 7,020,156 | 1,025,835 |
Total current liabilities | 10,533,588 | 6,324,942 |
Warrant liabilities | 440,318 | 2,192,352 | |
Long-term bank loans - net of current portion | - | 4,234,720 |
Total liabilities 10,973,906 12,752,014
COMMITMENTS AND CONTINGENCIES EQUITY
Preferred stock, par value $0.001 per share, authorized 10,000,000 shares, none
issued and outstanding - - Common stock, par value $0.001 per share, authorized 90,000,000 shares, 31,512,269
shares issued and outstanding | 31,512 | 31,512 |
Additional paid-in capital | 13,255,339 | 12,708,060 |
Treasury stock, at cost, 64,100 and 0 shares, respectively | (47,626) | - |
Statutory reserves | 2,424,309 | 2,424,309 |
Retained earnings | 28,135,096 | 19,982,696 |
Accumulated other comprehensive income | 5,500,026 | 4,187,216 |
Total equity | 49,298,656 | 39,333,793 |
Total liabilities and equity | $ 60,272,562 | $ 52,085,807 |
CHINA CLEAN ENERGY INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
For the nine months ended
September 30,
2011 2010
Net income $ 8,152,402 $ 4,144,269
Adjusted to reconcile net income to cash provided by operating activities:
Depreciation 1,545,165 1,577,712
Recovery of allowance for doubtful accounts (30,148) (40,108) Amortization of intangible assets 148,897 145,445
Stock-based compensation expense 547,279 318,945
Loss of impairment on assets held for sale - 257,391
Change in fair value of warrants libility (1,752,034) 246,478
Deferred tax benefit - (33,442) Loss on disposal of assets 73,470 -
Changes in operating assets and liabilities
Accounts receivable | 1,205,135 | (1,453,337) | |
Inventories | (67,065) | (4,124,833) | |
Other current assets | 6,958 | (1,833) | |
Advances for inventory purchases | (434,289) | (711,015) | |
Accounts payable | 851,539 | 1,407,348 | |
Accrued liabilities | (87,519) | (35,865) | |
Customer deposits | (390,573) | (16,346) | |
Taxes payables | (790,851) | 919,358 | |
Taxes receivable | 64,904 | (267,019) | |
Net cash provided by operating activities | 9,043,270 | 2,333,148 |
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment (74,776) (246,210) Proceeds from disposal of assets 36,752 -
Net cash used in investing activities (38,024) (246,210)
CASH FLOWS FROM FINANCING ACTIVITIES
Restricted cash 450,864 (474,729) Proceeds from bank loans 7,090,462 4,339,354
Repayments on bank loans (5,517,268) (2,334,200) Proceeds from (Repayments on) bankers acceptances (1,502,879) 1,598,278
Purchase of treasury stock (47,626) - Net cash provided by financing activities 473,553 3,128,703
EFFECT OF EXCHANGE RATE ON CASH 482,156 (256,173) INCREASE IN CASH AND CASH EQUIVALENTS 9,960,955 4,959,468
CASH AND CASH EQUIVALENTS, beginning of period 13,648,437 4,154,814
CASH AND CASH EQUIVALENTS, end of period $ 23,609,392 9,114,282
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid for:
Interest $ 367,517 $ 224,620
Income taxes $ 2,899,421 $ 787,834
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