First Quarter 2009 Results
The raise in revenue was driven by a 31.9% increase in sales of natural gas to $15 million from $11.3 million, and a 54.1% increase in installation and other sales to $2.4 million from $1.5 million. Gasoline revenue was $1.2 million, and raise of 3.9% from $1.1 million in the previous year’s period.
In the first quarter of 2009, gasoline contributed $1.2 million, or 6.3% of total revenue, compared to $1.1 million, or 8.1% of total revenue, in the year-ago quarter. As the revenue contribution from gasoline became material, China Natural Gas started to break out revenue contribution from the sale of gasoline through its CNG fueling stations in the fourth quarter of 2008.
Gross profit in the first quarter of 2009 raised 58.2% to $9.6 million, from $6.1 million in the year-ago quarter. Gross margin expanded 859 basis points to 52% in the first quarter from 43.4% in the year-ago quarter. Gross margin performance reflects raised sales of natural gas, which generated gross margin of about 54.9%, compared to 45.5% in the prior year’s period.
Operating income in the first quarter of 2009 raised 47.8% to $5.6 million from $3.8 million in the previous year’s period. Operating margin in the first quarter of 2009 was 30.4%, compared to 27.2% in the previous year’s period. Operating expenses in the first quarter of 2009 were $4 million, compared to $2.3 million in the year-ago quarter, reflecting expanded business operations.
Qinan Ji, chairman and chief executive officer of China Natural Gas, commented, “We are pleased with strong financial performance in the first three months of 2009. During this quarter, we signed an agreement with the governments of Yulin city and Shaanxi province that secured our power supply and provided a cost savings of approximately RMB 26 million.”
“We became the exclusive provider of natural gas services to Xi’an Baqiao Science and Technology Industrial Park, a transportation hub to eastern China. We also grew our customer base for CNG to nearly 100,000 accounts. We believe that all of these factors will contribute to our sustained strong performance in the future.”
Liquidity and Capital Resources
As of March 31, 2009, China Natural Gas raised cash and cash equivalents by $3.2 million to $9.1 million, compared to $5.9 million in the previous year. Cash flows from operations increased 78.1% YoY to $6.2 million, against $3.5 million in the year-ago quarter. China Natural Gas invested an additional $2.5 million to building in progress related to its LNG project. Accounts receivable was a modest $0.9 million, and DSOs remained significantly below 10 days.
Reverse Stock Split
All share and per share amounts used in China Natural Gas discussion on financial results, consolidated financial statements and notes thereto have been retroactively restated to reflect the 1-for-2 reverse stock split, which was effected on April 28, 2009. Although this reverse stock split has already occurred under Delaware corporate law, the company advises that China Natural Gas’ common stock keeps on to trading under the OTCBB ticker symbol, CHNG on a pre 1-for-2 reverse stock split basis.
China Natural Gas is at present in the process of working with OTC bulletin board through FINRA to ensure that the company’s common stock will trade on a post 1-for-2 reverse stock split basis as soon as possible.
Financial Outlook for 2009
China Natural Gas expects full year 2009 revenue will raise 15% to 20% to a range of $78 million to $83 million, from $68 million in the previous year. The company estimates full year 2009 net income will grow 15% to 22% to a range of $17.5 million to $18.5 million, from $15.2 million in the previous year.
Ji concluded, “As demonstrated by our strong performance in revenue growth, gross margin expansion, and solid cash flows, the first quarter is a good start for China Natural Gas in 2009. We are very pleased with the arrival of Veronica Chen to our senior management team, as we welcome her multi-cultural experience, profound knowledge of financial systems and markets, and impressive professional and academic achievements.”
“Chen will work closely with me in helping China Natural Gas accomplish its strategic objectives in 2009 and beyond. For the remainder of 2009, we remain committed to listing on NASDAQ. We are focused on steadily growing our CNG customer base, as we leverage our considerable operational scale. I am confident in our management team and in our competitive advantages, and I look forward to delivering sustained strong financial results and to ultimately reward our supportive shareholders with greater share value.”
