China Natural Gas Reports Decrease in Q2 Revenue

China Natural Gas said its revenue in the second quarter of 2013 decreased by 9.6% to $34.2 million from $37.9 million in the second quarter of 2012, driven by the closure of three fueling stations in the second quarter of 2012, three fueling stations in the third quarter of 2012, one fueling station in October 2012, and one fueling station in April 2013 because of changes in market conditions.

Sales revenue of natural gas decreased by 9.1% year-over-year to $31.8 million from $34.9 million in the second quarter of 2012. Gasoline revenue in the second quarter of 2013 decreased by 28.2% to $0.5 million, from $0.7 million in the same period of the prior year, mainly because the closure of one gasoline fueling stations during the fourth quarter of 2012. Installation and automobile conversion services revenue decreased by 12.9% year-over-year to $2.0 million, from $2.3 million a year ago. In the second quarter of 2013, sales of natural gas, gasoline, and installation and automobile conversion services contributed 92.7%, 1.5%, and 5.8% of total revenue, respectively.

Gross profit in the second quarter of 2013 decreased 18.7% to $11.2 million from $13.8 million in the same period of the prior year. Gross margin in the second quarter of 2013 was 32.8%, compared to 36.5% a year ago. Gross margin decreased primarily due to the decrease in gross margin for our LNG business.

Operating income in the second quarter of 2013 was $4.0 million, a decrease of 38.6% year-over-year from $6.6 million, primarily attributable to the decrease in gross profit of natural gas from fueling stations and LNG.

Income tax expense was $0.7 million at an effective tax rate of 18.2%, as compared to $1.3 million at an effective tax rate of 19.8% in the second quarter of 2012. The decrease of effective income tax rate was primarily attributable to the reduced income tax rate of 15% enjoyed by JBLNG beginning on January 1, 2013.

Net income in the second quarter of 2013 decreased by 37.4% to $3.2 million or $0.15 per diluted share from $5.1 million or $0.24 per diluted share in the second quarter of 2012.

As of June 30, 2013, the Company had $7.4 million of cash and cash equivalents on hand, compared to $10.9 million of cash and cash equivalents as of December 31, 2012. The decrease was primarily attributable to the construction of pipelines in Shaanxi Province and LNG fueling stations in Hubei Province, and the repayment of the loans from Shanghai Pudong Development Bank.

Net cash provided by operating activities was $10.0 million for the six months ended June 30, 2013, as compared to net cash provided by operations of $18.8 million for the six months ended June 30, 2012. The decrease was primarily due to the increase in advances to suppliers, accounts receivable and other receivable, and adjustments for non-cash expense items.