China Natural Gas Q3 Profit Down

China Natural Gas, a leading provider of compressed natural gas (CNG) for vehicular fuel and pipeline natural gas for industrial, commercial and residential use in Xi’an, announced its financial results for the third quarter ended September 30, 2012.

Shuwen Kang, CEO of China Natural Gas commented: “We are pleased to share the results of our third quarter. The company has successfully commenced commercial production of its Jingbian liquefied natural gas (“LNG”) plant on July 16, 2011, which represents a key milestone in its corporate history.

“Our network of compressed natural gas, or CNG, fueling stations currently contains 32 stations, a significant presence in the markets we operate in. Our outlook for the forthcoming quarter of the year is promising as we continue to grow our business, and we look forward to sharing any future developments as they materialize.”

Third Quarter 2012 Financial and Operating Results

Revenues in the third quarter of 2012 decreased by 15.8% to $31.06 million from $36.90 million in the third quarter of 2011,the decrease was primarily attributable to the sales volume decrease.

Natural gas sales decreased 13.4% year-over-year to $27.90 million, compared to $32.23 million in the third quarter of 2011.

Gasoline revenues in the third quarter of 2012 decreased to $0.65 million, down by 57.1% from $1.51 million in the same period of the prior year, which was mainly attributable to the closure of two gasoline fueling stations during the fourth quarter of 2011. Installation and services revenue decreased by 20.6% year-over-year to $2.51 million, compared to $3.16 million in the comparable period of 2011.

In the third quarter of 2012, sales of natural gas, gasoline, and installation and other services contributed 89.8%, 2.1%, and 8.1% of the total revenues, respectively.

Gross profit in the third quarter of 2012 decreased 26.1% to $10.48 million, compared to $14.18 million in the same period of the prior year. Gross margin in the third quarter of 2012 was 33.7%, compared to 38.4% a year ago. Gross margin decreased primarily due to the current lower gross margin level of the company’s LNG business, as compared to the gross margins of those business lines making greatest contribution to revenue.

Operating income in the third quarter of 2012 was $2.72 million, a decrease of 61.1% year-over-year from $7.00 million in the third quarter of 2011, primarily attributable to the decrease in gross profit of natural gas and increase in selling expenses.

Income tax expense was $0.09 million, as compared to $1.53 million in the third quarter of 2011.

Net loss in the third quarter of 2012 was $1.50 million, or $0.07 per diluted share, compared to net income of $4.55 million, or $0.21 per diluted share, in the third quarter of 2011, primarily attributable to the increase in non-operating expense related to the loss of $4.02 million on disposal of five fueling stations during the third quarter of 2012.

As of September 30, 2012, the Company had $8.60 million in cash and cash equivalents, compared to $9.62 million in cash and cash equivalents at December 31, 2011. The decrease was primarily attributable to the construction of the LNG plant and other projects, and the repayment of the loans from SPDB and of the principal of the Abax Senior Notes.

Net cash provided by operating activities was $21.08 million for the nine months ended September 30, 2012, compared to net cash provided by operations of $15.75 million for the nine months ended September 30, 2011. The increase was primarily due to the decrease in prepaid expense and other current assets, increase in unearned revenue and decrease in accounts receivable.

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LNG World News Staff, November 12, 2012; Image: China Natural Gas